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Fitch: Smaller APAC Banks May Replicate Sequential Pass-Through CVB
August 23, 2017 / 4:30 AM / 3 months ago

Fitch: Smaller APAC Banks May Replicate Sequential Pass-Through CVB

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: APAC Covered Bonds Quarterly - 2Q17 here SYDNEY/SEOUL, August 23 (Fitch) Fitch Ratings expects that smaller banks in Asia-Pacific which are contemplating covered bonds may replicate the sequential pass-through feature of Bank of Queensland Limited's (BOQ, A-/Stable/F2) conditional pass-through (CPT) covered bond programme. This is because it enables smaller banks to more efficiently utilise collateral that is affected by regulatory limits, and mitigates negative-carry risk between the mortgage collateral and cash accumulated in the programme. It also enables for faster repayment of outstanding covered bonds following switch of recourse, compared with other CPT programmes, which is a positive for investors. Conditional pass-through programmes mitigate the asset and liability mismatches through longer extension periods on the bond compared with 'soft' bullet bonds, which negates the need to sell assets. This means liquidity support is effectively provided by investors instead of issuers. BOQ's programme differs from European conditional pass-through programmes rated by Fitch, as the programme allows for sequential repayment of the outstanding covered bonds via pass-through of mortgage principal repayments from the cover pool. This means that where the recourse has switched to the cover pool and an outstanding extended bond has been repaid, the next maturing bond will immediately extend, even if it has not reached its scheduled maturity date. The programme also features hedging to mitigate currency mismatches between the cover assets and liabilities for the term of the extension. BOQ's first issuance was assigned a rating of 'AAA'/Stable on 10 July 2017. Fitch has also reviewed extension clause provisions in the programmes it rates, and the agency's findings have been summarised in the latest edition of "APAC Covered Bonds Quarterly - 2Q17". The report also contains aggregate information on the 15 programmes publicly rated by Fitch in the Asia-Pacific region, grouped by country, and each programme's individual statistics. It also includes commentary on covered bond rating actions and the quarter's covered bond issuance in the region. Data in the APAC Covered Bonds Quarterly - 2Q17 is as of 30 June 2017. The report can be accessed at www.fitchratings.com or via the link above. Contact: Claire Heaton Senior Director +61 2 8256 0361 Fitch Australia Pty Ltd Level 15 77 King Street Sydney NSW 2000 Keum Hee Oh Director +822 3278 8373 Vickie Brumwell Senior Director +61 2 8256 0305 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. 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Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

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