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Questions Singapore Covered Bonds
I. STRUCTURE OF THE ISSUER
1. Who is the issuer?
  • Universal credit institution
  • Special Purpose Entities (SPE)
(1) Comments: Covered bonds can be issued by either a bank or a SPV.
2. Does the bondholder have recourse to the credit institution?
  • Yes, direct
(2) Comments: In the case of an SPV issuing, the recourse would be indirect.
3. Who owns the cover assets?
  • SPE which guarantees the covered bonds
(3) Comments: Collateral transferred to the SPV in a manner that ensures they are beyond the issuer's and its creditors' reach, even in an insolvency situation.
4. Is the issuer the originator of the assets?
  • Yes
II. FRAMEWORK
1. Are the bonds governed by a special covered bond Legislation?
  • Yes
(4) Comments: The requirements set out in Notice 648 by the regulator (MAS) are mandatory for banks as it is part of the Banking Act. However, there is no special covered bond law in place in Singapore.
2. What is the legal framework for bankruptcy of the issuer of covered bonds?
  • General insolvency law
(5) Comments: According to MAS Notice 648, the issuer shall obtain a legal opinion to confirm that assets included in the cover pool are beyond its and its creditors' reach, even in an insolvency situation.
III. COVER ASSETS
1. What types of assets may be included in cover pools?
  • Mortgage loans (Mortgage loans for the purpose of this question are taken to include guaranteed real-estate loans.)
(6) Comments: The cover pool can also include any other loans secured by the same residential properties or any other assets forming part of the security package under the Mortgage Loans, derivatives held for the purpose of hedging risks arising from the particular issuance of covered bonds, Cash (including foreign currencies), Singapore Government Securities and MAS Bills.
2. What is the geographical scope for public sector assets?
(7) Comments: Not applicable
3. What is the geographical scope for mortgage assets?
  • Domestic
  • Other
(8) Comments: There is no restriction on the geographical scope of the mortgages.
4. Are regular covered bond specific disclosure requirements to the public mandatory?
  • Yes
(9) Comments: According to MAS Notice 648, the issuer shall disclose results of the ACTs (asset coverage tests) performed and cover pool characteristics on a regular basis, i.e. at least quarterly.
IV. VALUATION OF THE MORTGAGE COVER POOL & LTV CRITERIA
1. LTV is calculated using which valuation?[4]
  • Market value
(10) Comments: Current market valuation. Valuation needs to be done at least annually or more frequent basis where the property market is subject to significant changes in conditions.
2. Are there any special LTV limits used solely for calculating collateralisation rates for the cover pool (if yes, specify)?
  • Residential      
    80% of current market value
3. Do bondholders get the benefit of that portion of the loan which exceeds the LTV cap?
(11) Comments: Not specified under the Notice but bondholders are unlikely to benefit contractually.
4a. Is there an LTV cap which makes the entire loan ineligible to be put in the cover pool (if yes, specify)?
  • No
(12) Comments: Not specified under the Notice but likely no value attributed contractually.
4b. Is there an LTV cap which would require a loan to be removed from the cover pool?
  • No
(13) Comments: Not specified under the Notice.
5. Is there any additional LTV limit on a portfolio basis?
  • No
V. ASSET-LIABILITY GUIDELINES
. Exposure to market risk
1. Is exposure to market risk (e.g. interest rate, currency risks) required to be mitigated by law or contract?
  • Yes
(14) Comments: Regular stress tests on risks such as default, pre-payment, currency, interest rate, counterparty and liquidity risks.
2. What is the primary method for the mitigation of market risk?
  • Use of derivative hedge instruments
(15) Comments: Derivatives for the purpose of hedging risks are eligible as cover pool assets.
3. If the answer to the above question on market risk mitigation is “Use of derivative hedge instruments”, please specify whether those instruments are entered into:
  • By the time of issue of covered bonds or entry of asset in the cover pool
(16) Comments: Not specified under the Notice. Likely by contract.
4. What type of coverage test is applied?
  • Nominal cover
(17) Comments: Not specified under the Notice. Likely by contract.
5. What is the frequency of coverage calculations?
  • Quarterly
(18) Comments: At least quarterly as specified under the Notice.
6. What types of stress scenarios are applied?
  • Not relevant
(19) Comments: Not specified under the Notice. Likely by contract.
7. What is the frequency of stress test calculations?
  • Not relevant
(20) Comments: Not specified under the Notice. Likely by contract.
. Exposure to liquidity risk
8. Is exposure to liquidity risk required to be mitigated by law or contract?
  • No
(21) Comments: Not specified under the Notice. Likely by contract.
9. What is the primary method for the mitigation of liquidity risk on interest payments?
  • Contractual arrangements, e.g. a requirement to establish a reserve fund
(22) Comments: Not specified under the Notice. Likely by contract.
10. What is the primary method for the mitigation of liquidity risk on principal payments?
  • Contractual arrangements, e.g. maturity extension or prematurity test
(23) Comments: Not specified under the Notice. Likely by contract.
11. Is there any grace period in case of a breach of liquidity risk mitigants?
  • No
(24) Comments: Not specified under the Notice. Likely by contract.
12. What is the consequence of not fixing a breach of liquidity risk mitigants?
  • Event of default of the issuer
(25) Comments: Not specified under the Notice. Likely by contract.
. Monitoring of exposures to market and liquidity risk
13. Who monitors the maintenance of coverage tests?
  • Trustee/cover pool monitor
(26) Comments: Qualified auditor acting as the cover pool monitor has to conduct verification and assessment followed by submitting a certified report to the regulatory authority no later than 3 months following the end of the issuer's financial year end or as and when required if it becomes aware that the issuer or SPV has breached any of the conditions imposed.
14. Are there any regular public reporting requirements for market and liquidity risk?
  • Yes
(27) Comments: Results of the ACT and cover pool characteristics have to be published at least quarterly.
. Overcollateralisation
15. Is mandatory minimum overcollateralisation required?
  • By legislation/regulation
(28) Comments: The value of assets in a cover pool shall be at least 103% of the face value of the covered bonds secured by the assets at all times
16. What is the level of minimum mandatory overcollateralisation?

  • 3%
17. If mandatory overcollateralisation is required, are the amounts above the minimum OC level protected?
  • Yes
(29) Comments: Legal minimum OC and contractual OC will be protected, but voluntary OC above these levels will not protected.
18. Is there any grace period in case of a breach of the coverage test?
  • No
(30) Comments: Not specified under the Notice. Likely by contract.
19. What is the consequence of not fixing a breach of the coverage test?
  • Event of default of the issuer
(31) Comments: Not specified under the Notice. Likely by contract.
VI. COVER POOL MONITOR & BANKING SUPERVISION
1. Is a special license required for the issuing of covered bonds?
  • No, but with additional requirements
(32) Comments: Prior to the issuance of covered bonds, banks will be required to submit information on their covered bond programme to MAS at least one month in advance and at least 3 business days prior to each issuance under the programme.
2. Are there special reporting duties of the covered bond issuer to the supervision authority concerning covered bonds and the cover pool, which go beyond the regular banking supervision?
  • Periodic reporting required
  • Reporting on demand for special occasions
(33) Comments: Reports certified by the cover pool monitor have to be given to the regulatory authority. Issuer has to submit memorandum of compliance and/or any addition information as requested by the regulatory authority relating to the application and issuance of covered bonds.
3. What is the role of the banking supervision regarding covered bonds?
  • To check whether eligibility criteria are fulfilled and documented
  • Checking quality of cover assets (real estate valuations, etc)
  • Monitoring of exposure to market risk and liquidity risk
  • Evaluation of operational risk
  • To check minimum mandatory overcollateralisation requirements
4. Is there a special role of banking supervision in crisis regarding covered bonds?
  • No specific role
(34) Comments: Not specified under the Notice.
5. Is there a cover pool monitor independent from the issuer?
  • Yes
(35) Comments: Cover pool monitor must be qualified as an external auditor under the Companies Act (Cap 50).
6. If there is an independent cover pool monitor, what are its duties?
  • Performing audits of the cover pool
  • Reporting duties to the supervision authority
  • Verification of coverage tests
VII. SEGREGATION OF ASSETS & BANKRUPTCY REMOTENESS OF COVERED BONDS
1. Do covered bonds automatically accelerate when the credit institution goes insolvent?
  • No
2. What is the cover pool?
  • All assets on the cover register
  • All assets transferred to SPE
(36) Comments: Depending on the structure chosen.
3. How are the covered bondholders protected against claims from other creditors in case of insolvency of the issuer?
  • Transfer of assets to an SPE
4. Is there recourse to the credit institution’s insolvency estate upon a cover pool default?
  • Yes, pari passu with unsecured creditors
5. Are there provisions that require derivatives to continue in case of insolvency of the credit institution?
  • No
6. If derivatives are permitted in the cover pool, what is their ranking?
  • Pari passu to covered bond holders
VIII. RISK WEIGHTING & COMPLIANCE WITH EUROPEAN LEGISLATION
1. Does the covered bond fulfil the criteria of UCITS 52(4)?
  • No
(37) Comments: Due to the fact that Singapore is not a European country.
2. For further information regarding the compliance to the criteria of Article 129 of the Capital Requirements Regulation (CRR), please see the following links: http://ecbc.hypo.org/Content/default.asp?PageID=504#position https://www.coveredbondlabel.com
3. Are listed covered bonds eligible in repo transactions with the national central bank?
  • No
(38) Comments: Not at the moment.
4. Are there any special investment regulations regarding covered bonds?
  • No
IX. ADDITIONAL INFORMATION
1. Link to National Association representing covered bond interests
  • Association

    Due to the early development stage of Singapore covered bonds, a covered bond association has not been established.

2. Link to national regulators and supervisors
  • List
3. Fact Book Country Chapter
  • Chapter
 
4. Hypostat Country Chapter
  • Chapter

Comments for your selection

  • 1: Covered bonds can be issued by either a bank or a SPV.
  • 2: In the case of an SPV issuing, the recourse would be indirect.
  • 3: Collateral transferred to the SPV in a manner that ensures they are beyond the issuer's and its creditors' reach, even in an insolvency situation.
  • 4: The requirements set out in Notice 648 by the regulator (MAS) are mandatory for banks as it is part of the Banking Act. However, there is no special covered bond law in place in Singapore.
  • 5: According to MAS Notice 648, the issuer shall obtain a legal opinion to confirm that assets included in the cover pool are beyond its and its creditors' reach, even in an insolvency situation.
  • 6: The cover pool can also include any other loans secured by the same residential properties or any other assets forming part of the security package under the Mortgage Loans, derivatives held for the purpose of hedging risks arising from the particular issuance of covered bonds, Cash (including foreign currencies), Singapore Government Securities and MAS Bills.
  • 7: Not applicable
  • 8: There is no restriction on the geographical scope of the mortgages.
  • 9: According to MAS Notice 648, the issuer shall disclose results of the ACTs (asset coverage tests) performed and cover pool characteristics on a regular basis, i.e. at least quarterly.
  • 10: Current market valuation. Valuation needs to be done at least annually or more frequent basis where the property market is subject to significant changes in conditions.
  • 11: Not specified under the Notice but bondholders are unlikely to benefit contractually.
  • 12: Not specified under the Notice but likely no value attributed contractually.
  • 13: Not specified under the Notice.
  • 14: Regular stress tests on risks such as default, pre-payment, currency, interest rate, counterparty and liquidity risks.
  • 15: Derivatives for the purpose of hedging risks are eligible as cover pool assets.
  • 16: Not specified under the Notice. Likely by contract.
  • 17: Not specified under the Notice. Likely by contract.
  • 18: At least quarterly as specified under the Notice.
  • 19: Not specified under the Notice. Likely by contract.
  • 20: Not specified under the Notice. Likely by contract.
  • 21: Not specified under the Notice. Likely by contract.
  • 22: Not specified under the Notice. Likely by contract.
  • 23: Not specified under the Notice. Likely by contract.
  • 24: Not specified under the Notice. Likely by contract.
  • 25: Not specified under the Notice. Likely by contract.
  • 26: Qualified auditor acting as the cover pool monitor has to conduct verification and assessment followed by submitting a certified report to the regulatory authority no later than 3 months following the end of the issuer's financial year end or as and when required if it becomes aware that the issuer or SPV has breached any of the conditions imposed.
  • 27: Results of the ACT and cover pool characteristics have to be published at least quarterly.
  • 28: The value of assets in a cover pool shall be at least 103% of the face value of the covered bonds secured by the assets at all times
  • 29: Legal minimum OC and contractual OC will be protected, but voluntary OC above these levels will not protected.
  • 30: Not specified under the Notice. Likely by contract.
  • 31: Not specified under the Notice. Likely by contract.
  • 32: Prior to the issuance of covered bonds, banks will be required to submit information on their covered bond programme to MAS at least one month in advance and at least 3 business days prior to each issuance under the programme.
  • 33: Reports certified by the cover pool monitor have to be given to the regulatory authority. Issuer has to submit memorandum of compliance and/or any addition information as requested by the regulatory authority relating to the application and issuance of covered bonds.
  • 34: Not specified under the Notice.
  • 35: Cover pool monitor must be qualified as an external auditor under the Companies Act (Cap 50).
  • 36: Depending on the structure chosen.
  • 37: Due to the fact that Singapore is not a European country.
  • 38: Not at the moment.