Credit Quality of APAC Covered Bonds Will Remain Strong

[Moody's Report] Covered Bonds - Asia Pacific 2017 Outlook - Credit Quality of APAC Covered Bonds Will Remain Strong

[SUMMARY]

The credit quality of Australian, New Zealand, Korean and Singaporean covered bonds will remain strong in 2017, underpinned by the credit quality of issuers and sovereigns.

» Australia and New Zealand: The credit quality of Australian and New Zealand covered bonds will remain strong in 2017, underpinned by the high sovereign credit quality of the two countries, and the credit quality of bank issuers, which remains high despite our negative outlooks on the four major Australian banks and their New Zealand subsidiaries. The quality of the mortgage collateral in cover pools will be good but weaken slightly, owing to the inclusion of a greater proportion of riskier loans originated over the past three to four years. In both Australia and New Zealand, the mortgages originated over the past three to four years are more vulnerable to economic or housing market shocks, owning to rapid property price appreciation and rising household debt over this period.

» Korea: The credit quality of Korean covered bonds will be strong and stable in 2017, supported by the high credit quality of the issuers and the country’s sovereign strength. We rate Korea at Aa2 with a stable outlook. Existing and prospective issuers in Korea have high credit quality. The credit quality of the residential mortgage collateral in Korean cover pools will be good in 2017. Mortgages in Korean cover pools have low average loan-to-value (LTV) ratios of 40%- 65%, below the 70% maximum required under Korean regulations.

» Singapore: The credit quality of Singapore covered bonds will be strong and stable in 2017, supported by the high credit quality of the issuers and the country’s sovereign strength. We rate Singapore at Aaa with a stable outlook. In March 2016, we revised to negative from stable our outlooks for the large Singapore banking groups, including DBS Bank Ltd and United Overseas Bank Limited, which are covered bond issuers, and Oversea-Chinese Banking Corp Ltd, which has established a global covered bond programme but has not yet issued any covered bonds. Nevertheless, the credit quality of these banks remains strong. The credit quality of the residential mortgage collateral in Singaporean cover pools will be good in 2017. Mortgages in Singaporean cover pools have low average LTV ratios of 50%-60%.

PR__Credit_quality_of_APAC_covered_bonds.pdf

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