Covered bonds to gain more acceptance with increased stakeholder awareness

Covered bonds, a new form of debt financing in the domestic market, are gradually gaining acceptance and may become a preferred source of alternative funding going forward.

Well accepted in Europe and growing in popularity in some Asian countries like Singapore and Japan, covered bonds are structured debt products/securities that are issued by a bank or a financial institution to investors and are covered/backed by a pool of assets.

The issuers of covered bonds are able to mitigate the risks for the investors by providing an exclusive cover pool of assets assigned to a trust. For the investors, the bond provides a “dual recourse” benefit implying – in case of failure to meet repayment obligation by the issuer, the same will be met by a pool of assets that have been assigned to the trust. More so, during exceptional times like the current pandemic when collections suffer, the protection available to an investor of a covered bond is higher as opposed to the conventional securitisation of the pool of assets.