Jurisdiction - Singapore
Singapore – Consultation Paper On Proposed Amendments To MAS Notice 648 On Issuance Of Covered Bonds By Incorporated Banks .

6 March, 2015



On 29 January 2015, the Monetary Authority of Singapore (“MAS”) issued a Consultation Paper on Proposed Amendments to MAS Notice 648 on Issuance of Covered Bonds by Banks Incorporated in Singapore (“Consultation Paper”). MAS Notice 648 (“Notice”) had first been issued on 31 December 2013, and allows a locally incorporated bank in Singapore to issue covered bonds subject to conditions.

Structure Of Covered Bond Programme

The Notice allows banks the flexibility to structure their covered bond programme in the manner in which will best suit their needs. The MAS proposes amending the Notice to specifically also allow banks to consider an additional type of covered bond programme structure whereby a trust is declared over the residential mortgage loans used as collateral for the covered bonds, and for the beneficial interest in the declared trust to be transferred to a special purpose vehicle set up for the purpose of holding the cover pool. As is currently the case, banks will still be expected to get legal confirmation on the ring-fencing of such assets in the cover pool.

Requirements As To The Cover Pool

While Notice 648 allowed banks a great deal of flexibility as to the type of segregated covered bond structure they wished to use, it set strict requirements as to the kinds of assets that might be used in the cover pool as well as the risk exposure limitations. The Consultation Paper proposes to provide more flexibility in these areas.

Current Requirements Under The Notice

Under the Notice, only the following types of assets may be used in the cover pool:


  • mortgage loans secured by residential property (“residential mortgage loans”), whether in Singapore or elsewhere;
  • any other loans secured by the same residential property as the residential mortgage loans used in the cover pool;
  • assets including intangible properties that form part of all the security provided for the residential mortgage loans used in the cover pool (for example, guarantees and indemnities);
  • derivatives held for the purpose of hedging risks arising from the particular issuance of covered bonds;
  • cash (including foreign currency);
  • Singapore Government Securities; and
  • MAS Bills.


The cover pool assets must meet the following requirements:


  • The total value of the cover pool assets cannot exceed 4% of the value of the total assets of the bank at all times (increased from the 2% originally proposed);
  • The total value of the cover pool must be at least 103% of the face value of the covered bonds at all times;
  • the proportion of cash, Singapore Government Securities, and MAS Bills used in the cover pool should not exceed 15% of the total value of the cover pool’s assets; and
  • the residential mortgage loans have to adhere to the 80% loan-to-value (“LTV”) limit.

Proposals In The Consultation Paper

The Consultation Paper proposes the following changes to these requirements:


  • Banks may accumulate cash and cash equivalents up to an amount equal to 12 months of payment obligations under a covered bond programme.
  • To ensure that banks do not inadvertently exceed the 15% cap on cash and cash equivalents, in particular when they are replacing underperforming or coming-due assets in the cover pool, they will be allowed to exceed the 15% cap for a period not more than one month where this arises due to differences between the time of receipt and use of assets.
  • The LTV limit of 80% applies at the point of inclusion of residential mortgage loans into the cover pool. Subsequently, residential mortgage loans with LTV in excess of 80% may be retained in the cover pool, provided:
    • only the portion of the loans up to an LTV of 80% may be counted towards the minimum over-collateralisation requirement of 103%; and
    • the entire amount of the loans (including the portion in excess of the 80% LTV) will be subject to the 4% encumbrance limit on the value of cover pool assets as a percentage of the value of the total assets of the bank.




For further information, please contact:


Choon Yuen Hui, Partner, WongPartnership 
[email protected]

WongPartnership Banking & Finance Practice Profile in Singapore

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