The recovery in net interest margins is taking longer than French banks initially anticipated, due to limited loan production and continuing migration of deposits to remunerated accounts, so improvements in cost efficiency are limited.

Efforts to address remaining items in the Covered Bond Directive continue. While the Directive has brought many benefits, there is still room for improvement, particularly for European Secured Notes, which could offer both banks and SMEs funding benefits.

Giving depositors preference in insolvency and harmonising national deposit guarantee schemes are among proposed steps to improve the process for dealing with failing banks. They also edge towards the goals of the European Deposit Insurance Scheme (EDIS).

Debt markets are slowly reopening for Europe’s commercial real estate companies, but investor confidence is yet to recover to pre-2022 levels given the prevalence of high leverage, heavy capital expenditure and questions over governance at some issuers.

Corporate defaults across Europe are likely to continue rising in the months ahead before stabilising around year-end as financing conditions ease on stronger economic growth, more subdued inflation and companies’ self-help measures.

Profits at the Russian operations of RBI, UniCredit, and OTP Bank, the European banks with the highest exposures to Russia, continue to increase despite regulatory pressure to expedite exit plans.

Italian banks are poised for strong profitability in 2024 thanks to higher-than-expected rates and resilient credit quality. After a strong first half, lenders are confident of matching or even beating last year’s full-year performance.

Green and social covered bond issuance hit USD13.4bn in the first seven months of the year, representing approximately one in 10 new issues. But there is pressure to enforce consistent and standardised ESG disclosures related to cover pools.

Changes to the way the ECB plans to determine banks’ capital add-on requirements to increase the efficiency and effectiveness of the supervisory process and to focus on risks that require greater attention are welcome developments.

Scope expects growth in the AuM of direct lenders focusing on European companies to slow amid constraints on growth and investment. But while the credit profile of borrowers has deteriorated in the last two years, the picture is improving.