This year will not set any records for investor-placed covered bonds. After moderate-to-strong activity for most of the year, issuance in June was the slowest in over 10 years. But we still believe our projected volume of EUR 170bn for 2024 is feasible.

There is less than six months to go until the property value in the updated Capital Requirements Regulation takes effect. This could have a notable impact on covered bonds as market values are directly linked to the amount of bonds that can be issued.

Interest-rate cuts boosting loan demand and improving net interest margins were supposed to drive French banks’ performance in the second half but political uncertainty has put investment decisions on hold while mortgage demand was already hesitant.

The review and revision of EU supervisory practices to enhance their effectiveness is positive for the banking sector. While progress is being made to strengthen the regulatory framework, some banks may struggle or be unable to adapt to new requirements.

Despite expectations of a modest economic rebound in the euro area in the second half of 2024 aided by expected rate cuts and even more so in 2025, NPL formation will likely continue to rise moderately. We forecast euro-area GDP growth of 1.0% this year.

Heightened policy uncertainty in France and the threat of political instability after parliamentary elections have exposed the country’s banks to significant market volatility and challenged their ability to improve profitability relative to peers.

A sustained period of higher interest rates will present a challenge for many borrowers worldwide, as economies adapt to a new era of comparatively tight monetary policy amid a recovery in growth and enduring inflation.

This year has seen a rise in large bank M&A, reigniting speculation that a wave of consolidation may be imminent. The case for large cross-border mergers remains weak but there is potential for domestic activity in Italy, Spain, Germany and the UK.

Spanish banks saw record net interest income in Q1 while the cost of deposits likely reached its peak. BBVA’s bid for Sabadell could herald a period of consolidation in a dynamic economy offering growth opportunities that could benefit pricing power.

Scope Ratings requests comments on its Covered Bond Rating Methodology by 27 June 2024. The proposed changes to the methodology are not expected to have an impact on outstanding covered bond ratings assigned by Scope.