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Singapore's central bank is considering allowing domestic banks to issue covered bonds, in its latest step to develop the city-state's capital markets. Bankers think the first deals could appear as early as September, but are sceptical that there will be heavy issuance.
The prudential policy department of the Monetary Authority of Singapore (MAS) has issued a consultation paper on a regulatory framework for local bank issuance of covered bonds. The central bank has proposed a cap of 2% of a bank's assets, over-collateralisation of no less than 3% and a maximum loan to value ratio of 80%.
The 2% cap is low compared with other jurisdictions: Canada's limit is 4%, Australia's is 8%. MAS wants to keep the cap low to limit the extent to which covered bonds reduce the amount of assets available to the deposit insurance scheme and depositors in the event of a bank's insolvency. But the central bank has asked for comments from market participants. Some bankers reckon it will be willing to increase the cap if enough banks call for it.
The move to allow...