OREANDA-NEWS. Fitch Ratings says it expects Australian covered bond issuance to increase in 2016, reflecting the refinancing needs of the issuers over the next 18 months. In Fitch's report, "APAC Covered Bond Quarterly - 4Q15", released today, the agency forecasts issuance to be between AUD16bn-17bn, up 11%-18% from AUD14.3bn in 2015. New Zealand issuance is predicted to remain around the NZD2bn level, due to reliance on other sources of funding. In Asia, Fitch also expects growth as both DBS Bank Limited (DBS, AA-/Stable/F1+) and Kookmin Bank (KB, (A/Stable/F1) build up the liability profiles of their respective programmes and further Asian covered bond programs come on line.

Total issuance in 2015 for Australia equated to AUD14.3bn, down 23% from the previous year. It was, however, close to Fitch's published expectation of AUD15bn. In the same period, New Zealand issuance totalled NZD2.4bn which was the largest level of issuance since 2012 and double of that issued in 2014. During 4Q15, South Korea officially became a fully-fledged legislative covered bond issuing jurisdiction with KB's first issuance from its programme with a five year soft bullet issue of USD500m. It is the first multi-issuing programme from Korea governed by the Covered Bond Act.

In Singapore, property prices have dropped by 8.7% from the peak in September 2013. The drop was mainly facilitated by policy controls aimed at cooling the housing market. Fitch believes if immigration rates remain low, while vacancy rates and property supply remain elevated, property prices will continue to soften. Recent property price movements are unlikely to impact Fitch's ratings of Singapore's mortgage covered bonds.

Also in the report, Fitch discusses the technicalities of asset sale constraint clauses that are featured in the covered bond programmes that have an asset-owing special purpose vehicle (SPV) guaranteeing the covered bonds. The agency describes worked examples of the calculation and the clauses potential impact on the overcollateralisation (OC) for the programmes to support timely payment of the covered bonds. The main purpose of this feature is to limit the amount of assets that can be sold to meet the repayment of a maturing covered bond. This mitigates the risk of time subordination of later maturing covered bonds, once recourse switches to the cover pool.

Data reported in the "APAC Covered Bonds Quarterly - 4Q15", is at 31 December 2015. The report can be accessed at www.fitchratings.com.