2014 predicted to be the year of Asian covered bonds

Investors to get more diversified offerings.

Fitch Ratings says in a special report published today that Korea and Singapore's introduction of formal covered bond regimes in the last quarter of 2013 will pave the way for an increase in covered bond issuance in Asia, and more diversified offerings for investors in the asset class.

New Zealand also enacted legislation for its covered bond framework in late November 2013. Issuers now have nine months from the date of royal assent to make the necessary changes to their programmes for them to be registered under the legislation.

Furthermore, New Zealand covered bond programmes were also considered in a recent proposed change to Fitch's covered bond criteria to widen the ratings gap between covered bonds and senior unsecured debt. This proposal follows developments in Europe with the European Council's Bank Recovery and Resolution Directive.

2013 ended positively for Australian issuance, with the highest level of quarterly issuance seen since 3Q12. Total issuance in 2013 came to AUD18.9bn. New Zealand only saw a single issue in the last quarter, bringing total issuance for the year to NZD1.8bn. Fitch expects issuance levels in 2014 for both countries to reflect those of 2013.

Three covered bond programmes increased their cover pools in 4Q13, with National Australia Bank (AA-/Stable/F1+) leading the way with an increase of AUD2.7bn in loans. Outside of this, underlying loan assets remained relatively stable during 4Q13. Cover pool credit quality and characteristics have remained largely unchanged across Australia and New Zealand.

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