![Singapore Banks - Maybank Kim Eng 2017-01-17: Covered Bonds: Diversify Source Of Funding Singapore Banks - Maybank Kim Eng 2017-01-17: Covered Bonds: Diversify Source Of Funding](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj9JrAXfspzV6K7X8tiUilstWZ41BvQCQxXlUW0uTTtkFCbB7yqomhhTTBYYKHZ2_xsDJHgHYMnvZDWDRfZYldg9ygj1IwXUl8JFFqve5kTw7BLQbH2Hlj396JgUS9hWFAZLVZg3QFISeR2/s1600/Maybank+Kim+Eng+Singapore+Banks.png)
Singapore Banks - Covered Bonds: Diversify Source Of Funding
DBS priced issue of EUR750m covered bonds
- DBS announced it has successfully priced the issue of EUR750m in fixed-rate covered bonds due 2024 under its USD10b Global Covered Bond Programme. These covered bonds will bear a fixed coupon of 0.375% per annum payable yearly in arrears.
- This is DBS’s third issuance of covered bonds, after its USD1b and AUD750m issuance in 2015 and 2016 respectively.
- DBS’s covered bonds issuance will diversify funding source and reduce cost of funding but we think it is unlikely to meaningfully boost the bank’s NIM.
Competitive pricing
- Covered bonds are debt securities secured by a pool of assets, which consists of primarily residential mortgages in Singapore.
- Coupled with solid credit ratings of triple-A status by Singapore banks, they have attracted strong interest among global investors.
- We think banks will continue to offer competitive pricing (see Fig 1).
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi0rXTRbGD4OgMEk9-bcJHJHtoDuRJ0zZJ7qr6zPXVEwhYF80h966XNA3yXgmbASs0UIv9KmFBWDyFGHB9vySqSSV9AW93XvPlH5kzkokD53lls5VCDpdyDH3wBIrGsLpccVUm0Bu3R7WcM/s1600/Covered+Bonds+by+DBS+%2526+UOB+-+Maybank+Kim+Eng+20170117.png)
Diversification of funding sources
- Covered bonds are a relatively new funding tool for Singapore banks. It allows them to diversify their funding source and helps to lower cost of funding.
- In terms of total debt issuance as of Sep 2016, covered bonds currently form only ~7% and ~4% for DBS and UOB respectively.
- Singapore banks have established their Global Covered Bond Programme, with both DBS’s and OCBC’s programme at USD10b each, and UOB’s at USD8b. At USD8-10b of issuance, we do not expect covered bonds to boost the banks’ NIMs significantly from low cost of funding.
Maintain sector Negative; Prefer UOB
- As such, we maintain a NEGATIVE view on Singapore banks, mainly due to asset quality deterioration amid the turning credit cycle.
- We prefer UOB for its lower exposure to the O&G sector and China, and a bigger general-provision buffer.
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEid-dQGvlx7Lhcvcr_h4Wa4X2S9OCT9P3DdCNuphyphenhyphen6gNTdmvcQyXY8YGOf59mnKFGc5bIUHRVC8mxBJUW0RbQmTZLUGFudXCMyZx0lx9vaBZ0aVP9ElHu0uO80-eebFpKqPIeurAai3uNII/s1600/Singapore+Banks+Peer+Comparison+Maybank+Kim+Eng+20170117.png)
Ng Li Hiang
Maybank Kim Eng
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http://www.maybank-ke.com.sg/
2017-01-17
Maybank Kim Eng
SGX Stock
Analyst Report
15.680
Same
15.680
7.400
Same
7.400
18.360
Same
18.360