OREANDA-NEWS. Fitch says that while Auckland property prices have increased by 56% since June 2011 it believes the New Zealand cover pools are well positioned should a property price correction occur. Auckland property prices continue to climb despite the Reserve Bank of New Zealand's (RBNZ) attempts to cool the housing market.

In 2013, the RBNZ imposed lending 'speed limits' for lending above 80% loan to value ratio (LVR), limiting those originations to 10% of monthly flows. In June 2015, the RBNZ proposed to limit investment mortgages with an LVR greater than 70% to 2% of total investment loan commitments for the region and maintain the 'speed limit' for the Auckland region at 10%, to help curb property price growth. The current mortgage exposure to secured residential properties in Auckland is 44% of the total mortgages encumbered to New Zealand covered bond programmes. Fitch's analysis of the impact on the cover pools is outlined in its "APAC Covered Bond Quarterly - 2Q15" report, released today.

The report also details how 'hard bullet' covered bonds have fallen out of favour with issuers in Australia and New Zealand with only 'soft bullet' bonds being issued since 2Q2013. Hard bullet bonds require the full face value of a bond to be repaid at the maturity of the bond. Soft bullet bonds allows for an expected final maturity date but also allows a grace period (typically 12 months) to repay the bond should it not be redeemed on the expected maturity date. The move to soft bullet issuance over hard bullet has been mainly driven by regulatory liquidity requirements for issuers that impact the cost-effectiveness of the hard bullet product. Hard bullet bonds outstanding has dropped to as low as 34% of total issuance outstanding in some programmes.

The quarter saw the long awaited Asian covered bond market arrive with DBS Bank Ltd, (DBS, AA-/Stable/F1+) and Kookmin Bank (KB, A/Stable/F1) establishing their inaugural covered bond programmes. DBS was the first covered bond issuer for Singapore and KB was the first issuer to establish a programme under Korea's Covered Bond Act. DBS has since issued its USD1bn three-year bond on 6 August 2015, while KB is yet to come to market. The report has, as of this quarter, extended its coverage to Singapore and South Korea and includes information on the issuers' cover pools.

Fitch also completed its review of the account bank remedial periods for Australian and New Zealand covered bond programmes. It also concluded on its request for comment on the rating agency removal language (RRL) for structured finance and covered bond programmes.