South Korea could sbegin issuing bonds under its new covered bonds act as soon as the law comes into force in March 2014, said Fitch Ratings.

The ratings agency said that up to around $111 billion of covered bonds could theoretically be issued under the new act, based on the assets of the main Korean banks.  

South Korea passed its covered bonds act on Dec. 19. that is intended to reduce Korean households' exposure to interest rate shocks by facilitating longer-term, fixed rate mortgage lending.  It is the first Asian country to have dedicated covered bond legislation. 

The framework defines eligible issuers, the segregation of the covered assets post-insolvency of the issuer, eligible assets, the appointment of an independent monitor, and regulatory reporting requirements.  

Fitch said in a report that the framework allows for a range of assets to be used as collateral for covered bonds, which include residential mortgages, municipal bonds, mortgage bonds or shipping and aircraft loans.

The minimum level of collateralization is set at 105% and covered bond issuance is limited to 8% of the issuer's total assets. Liquid assets used as substitution assets are also limited to 10% of the cover pool.

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