The Enforcement Decree of the Covered Bond Act was approved by the Cabinet today to come into force starting from April 15, 2014. The Enforcement Decree is to stipulate details mandated by the Covered Bond Act such as qualifications for cover assets, evaluation basis and issuance cap.

KEY CONTENTS OF THE COV ERED BOND ACT AND ENFORCEMENT DECREE

1. Eligible issuers

Financial institutions are required to meet both institutional and eligibility requirements to issue covered bonds.

- (institutional requirement) banks, Korea Housing Finance Corporation, Korea Finance Corporation, and other equivalent institutions designated by Enforcement Decree

- (eligibility requirement) a financial institution with equity capital of more than KRW 100 billion, a BIS ratio of more than 10%, and risk management system

2. Cover Pool

The minimum ratio of collateralization is 105%. Underlying assets in a cover pool need to be evaluated by market prices if there are credible market prices as a reference price. In the absence of market prices, the assets can be evaluated by book value or acquisition prices.

- (underlying assets) home mortgage loans, public bonds, ship and aircraft mortgages, high-quality assets with a stable cash flow

- (liquid assets) cash, CDs, liquid assets converted into cash within three months

- (other assets) recovery from underlying assets, gains earned through management, operation and sales of assets

3. Issuance Cap

Covered bond issuance is limited to 4% of the issuer’s total assets.

* Please refer to the attached PDF for details.