South Korean Covered Bonds - Republic of Korea (South)

1 Who is the issuer? Universal credit institution

Banks licensed under the Bank Act, Korea Development Bank, Korea Eximbank, Industrial Bank of Korea, NH Bank, Suhyup Bank each of which with equity capital of not less than KRW 100 billion and BIS ratio of not less than 10%, Korea Housing Finance Corporation
2 Does the bondholder have recourse to the issuer (in case of special issuer: recourse to the sponsor bank)? Direct

For further comments, please see comments section at the end of the questionnaire
3 Who owns the cover assets? The issuer directly
4 Is the issuer the originator of the cover assets? Yes, partly (external origination possible)

1 What type of assets may be included in the cover pool?
  Primary assets Substitution assets
Public sector assets Mortgage assets Other 1* Other 2* Other 3*  
Exposures to public sector entities x
Exposures to credit institutions x
Residential mortgage loans x
Senior MBS issued by third parties x
Group originated MBS x
Exposures to multilateral development banks x
Derivatives x

For further comments, please see comments section at the end of the questionnaire
2 What is the geographical scope of assets?
  Primary assets Substitution assets
Public sector assets Mortgage assets Other 1* Other 2* Other 3*  
Domestic x x
Multilateral development banks x
EU x
UK x
CH x
Australia x
Canada x
Japan x
New Zealand x
G10 x
3 Is there a maximum level for substitute assets in the statutory national framework? Yes, please specifiy

4 Are there any reporting requirements for covered bond issuers to investors? Yes, by law

Issuer and CoverPool monitor are required to submit quarterly reports to financial regulatory authority using report form setting out details relating to CBs and pool. Issuer is required to publish such information on relevant website and must include details as notes to annual report of such issuer
5 What is the frequency of reporting to investors? Quarterly

1 What is the basis for property valuation Mortgage lending value
2 Is a regular update of the property value required? Yes, automated / indexed valuation sufficient
3 What are the LTV limits (single asset based)? Please specify in %/n.a. Residential
Other assets

Residential 70%; Ships 70%; Other: Aircraft 70%
4 Are loans in excess of LTV limits eligible for inclusion in the cover pool? No (hard limit)

Portion of the assets which exceed the required LTV shall not be eligible cover asset but shall be treated as being part of the Cover Pool unless the Cover Pool registration with respect to such portion of assets are cancelled. The right of priority shall also not be affected.

IV.1 Derivative contracts in the cover pool

1 Are derivative contracts eligible for the inclusion in the cover pool? Yes, exclusively for hedging purposes (by law)
2 Are there requirements for derivative contracts (e.g. eligibility criteria for hedging counterparties)? Yes, by contract
3 Will derivative contracts remain in case of insolvency of the issuer? Yes
4 If derivatives are permitted in the cover pool, what is their ranking? Pari passu to covered bond holders

IV.2 Exposure to market risk

1 What is the primary method for the mitigation of market risk? Natural' matching (i.e. match funding, matching without the use of off-balance sheet instruments) and stress testing

Where the cover pool consists of mortgages, any mortgages in arrears will be calculated by applying certain ratios and the other assets shall be valued using market values. Any assets which are not eligible assets and any derivative instruments entered into for hedging purposes shall be valued at '0
2 Are there mitigating provisions for interest rate risk? No
3 Are there mitigating provisions for foreign exchange risk? Yes, by legislation/regulation

For further comments, please see comments section at the end of the questionnaire
4 Are there mitigating provisions for maturity mismatch risk? No
5 What type of coverage test is applied?
6 Are there stress scenarios applied? No

IV.3 Liquidity risk

1 Is exposure to liquidity risk mitigated? Yes, contractual obligations

For further comments, please see comments section at the end of the questionnaire
2 What liquidity risk mitigation requirements are in place (principal)? Maturity extension provisions
Contractual pre-maturity test
3 What liquidity risk mitigation requirements are in place (interest)? Reserve fund requirements
4 What is the consequence of not fixing a breach of liquidity risk mitigants? No new covered bond issuance
Event of default

A breach of liquidity risk mitigants constitues Issuer Event of Default
5 If 180 days liquidity provisions are in place, what types of liquid assets are eligible
6 If 180 days liquidity provisions are in place, the calculation of principal is based on:

IV.4. Maturity extension

1 Is maturity extension allowed by national law? Yes but optional
2 Is it possible to issue… Hard bullet
Soft bullet
Conditional pass-through
3 Which trigger plays a role for maturity extension according to law - independent or alone or in combination? Issuer failure to pay
4 Does any competent authority need to give its okay (or non-opposition)? No

IV.5 Overcollateralisation

1 Is mandatory overcollateralisation required in the law ?

V.1 Cover pool monitor (CPM)

1 Is there a cover pool monitor in addition to national competent authorities in the statutory law? Yes, by law
2 Is the CPM separate from the issuing credit institution? Yes, required by national statutory law
3 Is the appointment, dismissal, eligibility criteria and the role of the CPM regulated by the national statutory law? Yes

V.2 Banking supervision

1 Which are the national competent authorities designated to carry out covered bonds public supervision in the law?

Financial Services Commission - Website

Financial Supervisory Services - Website

2 Is a special permission required for a covered bond programme according to national law? No

No, but with additional requirements
3 Is there a covered bond issuance limit in law or regulation? If yes, please specify Yes

4% of total asset of the issuer
4 Does the national statutory law provide for the appointment of a dedicated cover pool administrator in case of insolvency/resolution (transfer included acc. to BRRD [Bank Recovery and Resolution Directive])? No
5 Which is the typical frequency in the national statutory law of reporting from the covered bond issuers to the designated competent authorities? Quarterly

1 Does the national statutory law meet the requirements laid down in the EU Covered Bond Directive? No
2 Does the statutory law meet the requirements of Article 129 of CRR [Capital Requirement Regulation]? In this case, please specify the collateral types meeting the Art. 129 CRR. No
3 Does the statutory law allow covered bonds out of the scope of Art 129 of CRR? In this case, please specify the collateral No
4 Are listed covered bonds eligible in repo transactions with the national central bank? No

Any further comments/information? Comments on I.2: "Covered Bond holders, derivative counterparties related to Covered Bonds, other priority creditors including those with fees due shall have a priority right of payment on the registered Cover Pool over third parties. In case of bankruptcy of an issuer, the Cover Pool shall not be subject to bankruptcy proceeding, including compulsory execution, preservative measure and stay order with respect to such issuer. If the issuer becomes insolvent prior to repaying all of the principal of the Covered Bonds outstanding, the priority creditors have the right to participate in the bankruptcy proceedings of the issuers alongside other unsecured creditors of the issuer."
Comments on II.1: ""residential mortgages, debts issued by public sector with LTV of less than 70%, vessel mortgages and aircraft mortgages with LTV of less than 70%. Liquid Assets: liquid assets such as cash, Certificate of Deposits issued by other financial institutions with maturity shorter than 100 days
Other assets: recoveries from Cover Pool or Liquid Assets, derivative instruments etc.
The following liquid assets may be registered as Cover Pool up to a limit of 10% of total value of the Cover Pool.
1. Cash
2. Certificates of Deposit issued by other financial institutions with maturity shorter than 100 days
3. Deposits, overdraft facilities, discounted bills, credit card receivables etc with maturity shorter than 3 months
4. Debt issued by central or local governments of OECD member countries
5. Financial instruments similar to certificate of deposit with maturity shorter than 100 days which have been issued by central banks, commercial banks, investment banks, securities companies etc with an international credit rating of 'A' or above from either an OECD member country"
Comments on IV.2.3: "Where the currency of the Covered Bonds is different from the currency of the cover pool, the spot exchange rate prevailing on the calculation date shall be used to make the relevant calculations. Where the issuer has hedged its currency risk through derivative transactions, the exchange rate set out in such derivative contract may be utilised and the derivative counterparty will also be treated as a priority creditor under the Covered Bond Act."
Comments on IV.3.1: "There are no separate provisions dealing with liquidity risk in the Covered Bond Act. The covered bonds issued to date require the issuer to make contractual pr+E180ovisions for interest payments, commissions and fees payable for a certain period of time and it is expected that the covered bonds issued under the Covered Bond Act will also likely stipulate such reserve requirements to mitigate liquidity risk by way of contractual provisions."