TEXT-Fitch: Korea proposed covered bonds act likely to boost supply

(The following statement was released by the rating agency)

Nov 30 - Fitch Ratings says in a special report that the South Korean Financial Services Commission's (FSC) proposed covered bonds act (Act) represents significant progress towards establishing a diversified covered bonds market. Under the Act, banks are defined as eligible legislative covered bonds issuers and this will open an opportunity for banks to issue legislative covered bonds.

The proposed Act, if enacted, will be an addition to the KHFC Act under which KHFC ('AA-'/Stable/'F1+') is the only single eligible covered bond issuer that can directly issue legislative covered bonds. Financial institutions such as banks currently need to contemplate contractual covered bonds to issue directly. Alternatively, the banks can sell their mortgage assets to KHFC which would in turn issue under the KHFC Act, using the banks' mortgage assets as collateral.