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Rating Action:

Moody's assigns definitive Aaa to OCBC's Series 4 mortgage covered bonds

14 Mar 2018

GBP250 million of bonds rated

Hong Kong, March 14, 2018 -- Moody's Investors Service ("Moody's"), has today assigned a definitive Aaa long-term rating to the mortgage covered bonds (CB) issued by Oversea-Chinese Banking Corporation Limited (the issuer, counterparty risk (CR) assessment Aa1(cr), foreign currency senior unsecured rating Aa1, stable outlook) under the U.S.$10,000,000,000 Global Covered Bond Programme.

The complete rating action is as follows:

Issuer: Oversea-Chinese Banking Corporation Limited

....GBP250M Series 4, Assigned Aaa

RATINGS RATIONALE

A covered bond benefits from (1) the issuer's promise to pay interest and principal on the bonds; and (2) following a CB anchor event, the economic benefit of a collateral pool (the cover pool). The rating therefore reflects the following factors:

(1) The credit strength of the issuer and a CB anchor of the CR assessment plus zero notches.

(2) Following a CB anchor event, the value of the cover pool. The stressed level of losses on the cover pool assets following a CB anchor event (cover pool losses) for this transaction is 28.6%.

Moody's considered the following factors in its analysis of the cover pool's value:

a) The credit quality of the assets backing the covered bonds. The mortgage covered bonds are backed by Singaporean residential mortgage loans. The collateral score for the cover pool is 5%.

b) The legal framework for the programme, including a 12-month pre-maturity test or maturity extension, which aims to mitigate refinancing risk. Series 4 features a 12-month maturity extension.

c) The exposure to market risk, which is 25.3% for this cover pool. The main components are the refinancing risk and interest-rate risk.

d) The over-collateralisation (OC) in the cover pool is 54%, based on the cover pool amount as of 31 December 2017 and outstanding covered bonds of the issuer including the Series 4 covered bonds. The issuer currently maintains an asset percentage of 86%, which translates into an over-collateralisation of approximately 16.3%. Moody's considers the "committed" over-collateralisation to be 3% in its analysis (see Key Rating Assumptions/Factors, below).

The TPI assigned to this transaction is "Improbable". This TPI does not constrain the rating of the covered bonds at its current level.

As of the pool cut-off date on 31 December 2017, the total current aggregate loan balance of the cover pool was approximately SGD4,736 million, comprising 7,350 private residential mortgage loans. The residential mortgage loans have a weighted-average (WA) seasoning of 70 months, a WA remaining term of 233 months and a WA loan-to-value (LTV) ratio of 54.9%, based on current loan balances and unindexed property values.

The rating that Moody's has assigned addresses the expected loss posed to investors. Moody's rating addresses only the credit risks associated with the transaction. Moody's did not address other non-credit risks, but these may have a significant effect on yield to investors.

Key rating assumptions / factors:

Moody's determines covered bond ratings using a two-step process: an expected loss analysis and a TPI framework analysis.

Expected loss:

Moody's uses its Covered Bond Model (COBOL) to determine a rating based on the expected loss on the covered bonds. COBOL determines expected loss as (1) a function of the probability that the issuer will cease making payments under the covered bonds (a CB anchor event); and (2) the stressed losses on the cover pool assets following a CB anchor event.

The CB anchor for this programme is CR assessment plus zero notches. The CR assessment reflects an issuer's ability to avoid defaulting on certain senior bank operating obligations and contractual commitments, including covered bonds.

The cover pool losses for this programme are 28.6%. This is an estimate of the losses Moody's currently models following a CB anchor event. Moody's splits cover pool losses between market risk of 25.3% and collateral risk of 3.4%.

Market risk measures losses stemming from refinancing risk and risks related to interest-rate and currency mismatches (these losses may also include certain legal risks, such as set-off and commingling risks). Collateral risk measures losses resulting directly from cover pool assets' credit quality. Moody's derives collateral risk from the collateral score, which for this programme is currently 5%.

The minimum OC level consistent with the Aaa rating target is 1%. The over-collateralisation in the cover pool is 54%. The issuer has currently specified to maintain an asset percentage of 86%, which translates into an over-collateralisation of around 16.3%. Moody's deems the "committed" over-collateralisation to be 3% in its analysis, considering the issuer can adjust the asset percentage subject to certain requirements under the covered bond contractual agreements. The requirements include the limitation that the asset percentage cannot exceed 97%, which translates to an over-collateralisation of approximately 3% corresponding to the minimum requirement of 3% under the MAS Notice 648. These numbers show that Moody's is not relying on "uncommitted" OC in its expected loss analysis.

For further details on cover pool losses, collateral risk, market risk, collateral score and TPI Leeway across covered bond programmes rated by Moody's please refer to "Moody's Global Covered Bonds Monitoring Overview", published quarterly. All numbers in this section are based on Moody's most recent modelling (based on data, as of 31 December 2017).

TPI Framework:

Moody's assigns a "timely payment indicator" (TPI), which measures the likelihood of timely payments to covered bondholders following a CB anchor event. The TPI framework limits the covered bond rating to a certain number of notches above the CB anchor.

Factors that would lead to a downgrade of the rating:

The CB anchor is the main determinant of a covered bond programme's rating robustness. A change in the level of the CB anchor could lead to a downgrade of the covered bonds.

The TPI Leeway measures the number of notches by which Moody's might lower the CB anchor before the rating agency downgrades the covered bonds because of TPI framework constraints.

Based on the current TPI of "Improbable", the TPI Leeway for this programme is three notches. This implies that Moody's might downgrade the covered bonds because of a TPI cap if it lowers the issuer's CB anchor by more than three notches, all other variables being equal.

A multiple-notch downgrade of the covered bonds might occur in certain circumstances, such as (1) a country ceiling or sovereign downgrade capping a covered bond rating or negatively affecting the CB Anchor and the TPI; (2) a multiple-notch downgrade of the CB Anchor; or (3) a material reduction of the value of the cover pool.

RATING METHODOLOGY:

The principal methodology used in this rating was "Moody's Approach to Rating Covered Bonds" published in December 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

Moody's did not use any stress scenario simulations in its analysis.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating.

Joe Wong
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Kei Kitayama
MD - Asia Pac Structured Fin
Structured Finance Group
JOURNALISTS: 81 3 5408 4110
Client Service: 81 3 5408 4100

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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