Chart of the Week: Singapore banks diversify funding source with covered bonds

Covered bonds form 7% of total debt issued by DBS.

According to Maybank Kim Eng, 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."

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.