Australian Covered Bonds - Australia

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*   In Australia, the specific types of assets eligible for inclusion in the cover pool of covered bonds are not explicitly detailed in the publicly available version of the Australian Prudential Regulation Authority's (APRA) Prudential Standard APS 121 – Covered Bonds.
2	What is the geographical scope of assets?
	Primary assets Substitution assets Public sector assets Mortgage assets Other 1* Other 2* Other 3*   While APS 121 does not explicitly restrict the geographical location of cover pool assets, the inclusion of Australian-based assets aligns with standard industry practices.
3	Is there a maximum level for substitute assets in the statutory national framework?	Yes, please specifiy There isn't a specific quantitative limit set for substitute assets. However, the standard mandates that any assets held by the SPV other than those securing covered bond liabilities (i.e., substitute assets), must be limited to what is necessary for the efficient operation of the CB program.
4	Are there any reporting requirements for covered bond issuers to investors?	Yes, contractual obligations
5	What is the frequency of reporting to investors?	Monthly

1	What is the basis for property valuation	No explicit provision in applicable legislation
2	Is a regular update of the property value required?	No While APS 121 does not specify the frequency of property valuations, it is standard industry practice for ADIs to conduct periodic revaluations of properties securing loans in the cover pool to ensure that asset values remain current and accurately reflect market conditions.
3	What are the LTV limits (single asset based)? Please specify in %/n.a.
4	Are loans in excess of LTV limits eligible for inclusion in the cover pool?	Yes (soft limit)

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) According to APRA's Prudential Standard APS 121 – Covered Bonds, the assets within the cover pool may include derivatives related to the covered bond issuance, such as currency and interest rate swaps.
2	Are there requirements for derivative contracts (e.g. eligibility criteria for hedging counterparties)?	Yes, specified in law While APS 121 focuses on issuance of covered bonds, standards such as APS 180 and CPS 226 provide detailed requirements for managing derivative counterparty risks. ADIs should ensure that their derivative contracts, especially those included in the cover pool, comply with these prudential standards.
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 In the context of Australian covered bonds, derivative contracts included in the cover pool are generally structured to mirror the ranking of the covered bonds themselves. This means that these derivatives typically hold the same priority as the covered bonds.

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 Use of derivative hedging instruments The primary method is to maintain a robust risk management framework that includes hedging strategies to offset market exposures. In addition, the cover pool is kept overcollateralized, and its composition is actively monitored through regular valuation updates, coverage tests, and stress scenarios.
2	Are there mitigating provisions for interest rate risk?	Yes, by legislation/regulation Yes. ADIs typically use interest rate derivatives (such as swaps, futures, or options) to hedge against fluctuations in interest rates. In addition, they manage the duration and cash flow profiles of the cover pool assets to better match the liabilities.
3	Are there mitigating provisions for foreign exchange risk?	Yes, by legislation/regulation Yes. Although many covered bond programs primarily involve domestic assets (limiting FX exposure), if foreign exchange risk is present, ADIs can employ hedging instruments such as forward contracts or currency swaps to mitigate this risk.
4	Are there mitigating provisions for maturity mismatch risk?	Yes, by legislation/regulation Yes. Maturity mismatch risk is addressed by employing asset-liability management techniques, which may include hedging through derivatives and structuring the cover pool so that the maturities of the assets closely align with the maturity profile of the covered bond liabilities.
5	What type of coverage test is applied?	Present value cover The coverage test generally involves calculating the ratio of the cover pool’s asset value to the outstanding covered bond liabilities. A minimum (often over 100%) is required to ensure that the bonds are fully overcollateralized.
6	Are there stress scenarios applied?	Yes, by law Yes. Stress testing is a key component of the risk management framework. ADIs are required to apply stress scenarios that simulate adverse market conditions—such as sharp changes in interest rates, declines in property values, or significant currency fluctuations.

IV.3 Liquidity risk

1	Is exposure to liquidity risk mitigated?	Yes, by law Yes, ADIs are required to maintain an adequate level of liquidity to meet their obligations as they fall due across a wide range of operating circumstances.
2	What liquidity risk mitigation requirements are in place (principal)?	180 days liquidity provisions Matching requirements Stress testing requirements
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?	Other, please specify Failure to address breaches in liquidity risk mitigants can lead to regulatory actions by APRA, including increased supervisory scrutiny, requirements to hold additional capital, or other corrective measures to ensure the ADI's ongoing financial stability.
5	If 180 days liquidity provisions are in place, what types of liquid assets are eligible	Other, please specify Under APRA's liquidity framework, liquid assets eligible for meeting liquidity requirements typically include cash, highly rated government and semi-government securities, and other marketable securities that can be quickly converted to cash without significant loss of value.
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…
3	Which trigger plays a role for maturity extension according to law - independent or alone or in combination?
4	Does any competent authority need to give its okay (or non-opposition)?

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?	Australian Prudential Regulation Authority (APRA) - Website
2	Is a special permission required for a covered bond programme according to national law?	Others, please specify
3	Is there a covered bond issuance limit in law or regulation? If yes, please specify	Yes
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])?
5	Which is the typical frequency in the national statutory law of reporting from the covered bond issuers to the designated competent authorities?	No, but there is a market practice

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 Not relevant for non-EEA covered bonds including Australian covered bonds.
3	Does the statutory law allow covered bonds out of the scope of Art 129 of CRR? In this case, please specify the collateral	Yes Not relevant for non-EEA covered bonds including Australian covered bonds.
4	Are listed covered bonds eligible in repo transactions with the national central bank?	Yes

Primary Legislation

• https://www.legislation.gov.au/C1959A00006/latest/text (Original language)

Secondary Legislation

• https://www.legislation.gov.au/F2022L01566/latest/text (Original language)

Fact Book

• 3.2 Australia.pdf (English language)

Any further comments/information?