Jurisdiction - Singapore
Reports and Analysis
Singapore – MAS Notice 648 On The Issuance of Covered Bonds by Banks Incorporated.

12 February, 2014



On 31 December 2013, the Monetary Authority of Singapore (“MAS”) issued MAS Notice 648 on the Issuance of Covered Bonds by Banks Incorporated in Singapore (“Notice”). The MAS had previously issued a Consultation Paper on the Notice on 9 March 2012.


The Notice took effect immediately and applies to all issues of covered bonds by banks in Singapore. Only banks incorporated in Singapore (including the Singapore-incorporated subsidiaries of foreign banks) may issue covered bonds in Singapore; foreign banks and their Singapore branches may not do so. The Notice deals with the following matters:


  • The asset criteria for the cover pool;
  • The governance and risk management requirements to be adopted; and
  • The notifications to be given to the MAS prior to issuing covered bonds.


Requirements For The Cover Pool


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 assets used must be those of the bank and not those of other entities in its banking group.


Feedback was given requesting for other types of assets and cash and cash equivalents to be included in the cover pool to help ensure critical mass and liquidity. The MAS noted that the primary collateral should be residential mortgage loans but indicated that they would review the inclusion of other types of loans at a later stage.


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 limit.

Use Of A Special Purpose Vehicle


A bank may use a special purpose vehicle (“SPV”) to issue covered bonds or to hold the cover pool. Where it does so, when computing its risk-based capital requirements under MAS Notice 637 (Risk Based Capital Adequacy Requirements for Banks Incorporated in Singapore) it must treat the SPV and the bank as a single entity.


Where the SPV is used to hold the cover pool, borrowers of the mortgage or other loans used in the cover pool must be notified, in the notice of assignment, of the consequences of legal perfection including whether they have a right to set-off their loans against any deposits that they have placed with the bank.


Governance and Risk Management Requirements


Banks that issue covered bonds are required to have in place an appropriate governance and risk management programme to manage the risks arising from the issuance of such bonds. The Notice specifies the following as examples of arrangements that should be in place:


  • Identifying the approval authority within the bank with respect to the covered bond programme;
  • Performing asset coverage tests (“ACTs”) annually (at a minimum) to ensure collateral quality and the proper level of over-collateralisation; and
  • Conducting regular stress tests on risks arising from issuing covered bonds such as default, pre-payment, currency, interest rate, counterparty, and liquidity risks.


The bank must also appoint a cover pool monitor to carry out the following duties:


  • Verify annually that the bank has complied with the requirements in the Notice as to the composition of the cover pool assets and encumbrance limits;
  • Verify that the bank keeps an accurate register of the assets in the cover pool as required by the Notice; and
  • Assess the adequacy of the bank’s risk management process and internal controls relating to the covered bond programme annually, including an independent review of ACTs performed.


The cover pool monitor must submit a certified report to the MAS annually on these matters, and must report to the MAS immediately if it becomes aware that the bank has breached any of the Notice’s requirements.


In response to queries provided in the feedback to the consultation, the MAS has clarified that the external auditor of the bank may act concurrently as the bank’s cover pool monitor, if the bank assesses that there is no conflict of interest.


Notification And Other Requirements


Before a bank issues covered bonds, written notification of the following information must be given to the MAS at the following points in time:


  • At least one month prior to the issuance:
    • Information on the covered bond programme, including the type of assets that will be included in the cover pool under the covered bond programme; and
    • A sign-off from the board and senior management on the programme; and
  • At least three business days prior to the issuance of any covered bonds under the programme:
    • Information on the size, tenure, and terms of the issuance;
    • Information on the amount of assets used to back the covered bonds; and
    • A Memorandum of Compliance.


The issuer must disclose to covered bond investors the results of ACTs performed and cover pool characteristics on a regular basis.


The Notice does not carry any details on the appointment, duties, and powers of a covered bond administrator.




Choon Yuen Hui, Partner, WongPartnership

[email protected] 


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