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Sector Flash - Covered Bonds: Singapore covered bonds supported by strong 1Q21 earnings

  • The Singaporean covered bond market has a total size of EUR 9.1bn (euro equivalent) and currently has three active issuers, DBS, OCBC and UOB. More than two thirds of the outstanding covered bonds are denominated in EUR (71%), followed by USD with a share of 16%, GBP (8%) and AUD (5%).
  • Covered bond supply from Singapore has just returned after five months with UOB placing a EUR 750mn covered bond on 18 May (the last previous issuance by a Singaporean bank was in December 2020, also by UOB). We expect at least one euro-denominated issue from each of the three current issuers in the course of this year.
  • Our assumption is based on 1. the positive momentum of very strong 1Q21 earnings results and higher loan volumes and 2. the recent increase in the encumbrance limit. The increase in the encumbrance limit is, in our view, a clear indication that Singapore’s banks want to make more use of covered bond funding going forward. We therefore expect Singaporean banks to increase their covered bond funding activities in 2021.
  • The common key theme of the first-quarter results released by the three leading banks in Singapore was a strong increase in net profit. Continued margin pressure was more than compensated for by higher fees and commissions. In addition, lower allowances for credit and other losses had a positive effect on earnings and capital positions improved further.

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