Scope’s covered bond ratings concern around 40 European issuers, including the programmes of all the major European banks and covered bond issuers and some small, regionally focused issuers. A balanced blend of qualitative and quantitative factors in the ratings analysis captures the hybrid credit risks posed by secured bank funding instruments like covered bonds. Investor demand determines coverage
Rating overview
Our covered bond rating methodology reflects the strong prudential metrics and enhanced regulatory and supervisory framework for banks. A scenario in which a covered bond relies solely on its cover pool for repayments has become remote. We review country-specific legal covered bond frameworks and their varying degrees of systemic importance, which can allow for a rating uplift to the bank rating of up to six notches. Cover-pool strength, based on issuer and product-specific performance metrics rather than generic assumptions, allows for extra uplift of up to three notches and total credit differentiation of up to nine notches
Scope’s covered bond credit-risk assessment is anchored by the issuer rating (see our bank rating microsite – here). Our fundamental credit support assessment establishes whether additional credit differentiation is possible and identifies factors that support either a going concern of the covered bond programme or private-sector solutions
Cover-pool credit support, based on expected loss, reflects the availability and strength of the second recourse of covered bonds i.e. when the issuer becomes insolvent (after resolution). Our bottom-up approach reflects country and issuer-specific underwriting and performance characteristics. A Cover Pool Complexity Score reflects how transparent an issuer is in providing investors with sufficient information about the rsk profile of their covered bonds.
Scope evaluates counterparty risk and the macroeconomic environment in the context of the individual covered bond structure and its relative weight in the cover-pool analysis, eliminating bias, with no mechanistic caps or one-size-fits-all assumptions.
We incorporate environmental credit risk drivers such as different recoveries for ESG-compliant mortgages as well as governance aspects that are key to protect investors
Scope’s covered bonds research consists of timely analysis, commentary and opinion on topical and country-based themes. The Covered Bond Quarterly captures key developments: regulatory and supervisory, primary market, and key topics for covered bonds, such as house prices. The annual outlook reviews developments and makes a forward-looking assessment of key topics for the year ahead. The team also offers webinars covering key themes and transactions.
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