Research: Rating Action: Moody’s assigns definitive Aaa rating to DBS Bank’s Series 14 mortgage covered bonds

USD900 million of covered bonds rated

Singapore, March 10, 2023 — Moody’s Investors Service has today assigned definitive Aaa long-term rating to the Series 14 mortgage covered bonds (CB) issued by DBS Bank Ltd. (the issuer, counterparty risk assessment Aa1(cr), adjusted baseline credit assessment a1) under its USD10,000,000,000 Global Covered Bond Programme (“DBS Bank Ltd. Global Covered Bond Programme”).

Issuer: DBS Bank Ltd.

….USD900,000,000 Floating Rate Covered Bonds due 2026 (Series 14), Assigned Aaa

RATINGS RATIONALE

A covered bond benefits from (1) the issuer’s promise to pay interest and principal on the covered bonds; and (2) following a CB anchor event, the economic benefit of a collateral pool (the cover pool).

The rating therefore reflects the following factors:

(1) The credit strength of the issuer and a CB anchor of the counterparty risk assessment plus zero notches (i.e. currently at Aa1(cr)).

(2) Following a CB anchor event, the value of the cover pool. The stressed level of losses on the cover pool assets — following a CB anchor event (cover pool losses) — for this transaction is 24.0%.

Moody’s considered the following factors in its analysis of the cover pool’s value:

a) The credit quality of the assets backing the covered bonds. The mortgage covered bonds are backed by Singaporean residential mortgage loans. The collateral score for the cover pool is 5%.

b) The legal framework for the programme, including a 12-month pre-maturity test or maturity extension, which aims to mitigate refinancing risk. Series 14 features a 12-month maturity extension.

c) The exposure to market risk, which is 20.6% for this cover pool. The main components are the refinancing risk and the foreign currency mismatch risk.

d) The over-collateralisation (OC) in the cover pool is 81.1%, based on the cover pool amount as of 9 September 2022 and outstanding covered bonds of the issuer, including the Series 14 covered bonds. The issuer has currently specified to maintain an asset percentage of 90.0%, which translates into an over-collateralisation of approximately 11.1%. Moody’s considers the “committed” over-collateralisation to be 3% in its analysis (see Key Rating Assumptions/Factors, below). The TPI assigned to this transaction is “Probable”. This TPI does not constrain the rating of the covered bonds at its current level.

As of the pool cut-off date on 9 September 2022, the total value of the assets included in the cover pool was approximately SGD17,396 million, comprising 24,717 private residential mortgage loans and unutilised principal receipts. The residential mortgage loans have a weighted-average (WA) seasoning of 64 months, a WA remaining term of 239 months and a WA loan-to-value (LTV) ratio of 53.3%, based on property values as of loan origination.

KEY RATING ASSUMPTIONS/FACTORS

Moody’s determines covered bond ratings using a two-step process: an expected loss analysis and a TPI framework analysis.

EXPECTED LOSS: Moody’s uses its Covered Bond Model (COBOL) to determine a rating based on the expected loss on the bond. COBOL determines expected loss as (1) a function of the probability that the issuer will cease making payments under the covered bonds (a CB anchor event); and (2) the stressed losses on the cover pool assets following a CB anchor event.

The CB anchor for this programme is the counterparty risk assessment plus zero notches.

The cover pool losses for this programme are 24.0%. This is an estimate of the losses Moody’s currently models following a CB anchor event. Moody’s splits cover pool losses between market risk of 20.6% and collateral risk of 3.4%.

Market risk measures losses stemming from refinancing risk and risks related to interest-rate and currency mismatches (these losses may also include certain legal risks). Collateral risk measures losses resulting directly from the cover pool assets’ credit quality. Moody’s derives collateral risk from the collateral score, which for this programme is currently 5%.

The minimum OC level consistent with the Aaa rating target is 0%. The over-collateralisation in the cover pool is 81.1%. The issuer has currently specified to maintain an asset percentage of 90.0%, which translates into an over-collateralisation of around 11.1%. Moody’s deems the “committed” over-collateralisation to be 3% in its analysis, considering the issuer can adjust the asset percentage, subject to certain requirements under the covered bond contractual agreements.

The requirements include the limitation that the asset percentage cannot exceed 97%, which translates to an over-collateralisation of approximately 3% corresponding to the minimum requirement of 3% under the MAS Notice 648. These numbers show that Moody’s is not relying on “uncommitted” OC in its expected loss analysis.

For further details on cover pool losses, collateral risk, market risk, collateral score and TPI Leeway across covered bond programmes rated by Moody’s please refer to “Covered Bonds – Global: Sector Update” published quarterly.

TPI FRAMEWORK: Moody’s assigns a “timely payment indicator” (TPI), which measures the likelihood of timely payments to covered bondholders following a CB anchor event. The TPI framework limits the covered bond rating to a certain number of notches above the CB anchor.

Factors that would lead to an upgrade or downgrade of the rating:

The CB anchor is the main determinant of a covered bond programme’s rating robustness. A change in the level of the CB anchor could lead to a downgrade of the covered bonds. The TPI Leeway measures the number of notches by which Moody’s might lower the CB anchor before the rating agency downgrades the covered bonds because of TPI framework constraints.

Based on the current TPI of “Probable”, the TPI Leeway for this programme is five notches. This implies that Moody’s might downgrade the covered bonds because of a TPI cap if it lowers the CB anchor by six or more notches, all other variables being equal.

A multiple-notch downgrade of the covered bonds might occur in certain circumstances, such as (1) a country ceiling or sovereign downgrade capping a covered bond rating or negatively affecting the CB Anchor and the TPI; (2) a multiple-notch downgrade of the CB Anchor; or (3) a material reduction of the value of the cover pool.

RATING METHODOLOGY

The principal methodology used in this rating was “Moody’s Approach to Rating Covered Bonds” published in November 2022 and available at https://ratings.moodys.com/api/rmc-documents/396015. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.

Moody’s did not use any stress scenario simulations in its analysis.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.

Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Daniel Gan
Analyst
Structured Finance Group
Moody’s Investors Service Singapore Pte. Ltd.
71 Robinson Road #05-01/02
Singapore, 068895
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Kei Kitayama
MD – Asia-Pac Structured Fin
Structured Finance Group
JOURNALISTS: 81 3 5408 4110
Client Service: 81 3 5408 4100

Releasing Office:
Moody’s Investors Service Singapore Pte. Ltd.
71 Robinson Road #05-01/02
Singapore, 068895
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077