Covered bonds growth outlook for banks in the Asia Pacific region remains bleak
Lacking the financial maturity or need for developed markets in the Asia Pacific region, covered bonds are not likely to see significant growth in the near future. January 06, 2012 | Doron FooIn the wake of the global financial crisis and the on-going global macroeconomic instability, banks in the Asia Pacific region are under pressure from their regulators to increase liquidity and capital adequacy ratios. Banks are increasingly finding covered bonds attractive for funding their operations due to their low risk-weighting and favourable treatment for liquidity and capital ratios under the proposed Basel III guidelines. Covered bonds are defined as debt instruments secured by a cover pool of loans or cash flows to which investors have a preferential claim in the event of default. This ring-fencing of assets and over- collateralisation of loans allow the issuer to obtain higher credit ratings than the parent company for the bonds, and in turn lower interest rates. Please click to view enlarged image Figure 2: Liquidity Ratio of selected banks in the Asia Pacific region in 2011 Please click to view enlarged image Note: Liquidity ratio is defined as Liquid Assets/Total short term liabilities In general, most ba... Please login to read the complete article. If you already have an account, you can login now or subscribe/register.
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