Scope Ratings, which published first-time ratings of 18 European banks earlier this month, has said that it is imperative for it to rate covered bonds if it is to add value, and that efforts to this end including a hire are underway.

Speaking to The Covered Bond Report, Samuel Theodore, managing director – financial institutions, at Scope Ratings, said that work is underway to develop a methodology for the rating of covered bonds, which he hopes will be complete within the year.

“You definitely have to rate covered bonds if you wish to add value,” said Theodore. “We are looking to hire someone imminently, and as is our preference we are trying to find a candidate away from a rating agency background.”

Under its approach, Scope provides an issuer credit strength rating, a senior unsecured rating, and a rating outlook. Scope’s ratings of European banks (see table) range from BBB+ to AA-, with all the banks rated on stable outlook, with the exception of Commerzbank and Crédit Agricole, which have both been assigned positive outlooks.

“The ratings of these 18 institutions reflect the banks’ strengthening credit fundamentals at the tail-end of a lengthy financial crisis,” said Theodore. “They also take into account the new resolution and recovery regime which is in place in Switzerland and is emerging in the European Union.”

Theodore said that the implementation by regulatory authorities of resolution steps in a timely and disciplined manner would provide a stability and predictability to bank ratings.

Under Scope’s methodology, no rating notch uplift is given to factor in state support – with the exception of Royal Bank of Scotland, which is 80% state-owned – as the rating agency believes that state support for banks in distress is more improbable than before and during the crisis.

“We have also delinked our ratings from our sovereign assessments, and do not cap bank ratings based on sovereign ratings,” said Theodore.

The Berlin-based rating agency was founded in 2002 and focused on rating domestic issuers. It first expanded beyond this remit in 2013 to include French issuers, and then again this year to rate financial institutions throughout Europe.

Theodore said that Scope was coming into a market with room for competition, adding that “the market is not particularly happy with the current offering” and that the US has made progress in reducing its reliance on rating agencies.

“We offer something different, employing a post-crisis methodology,” he said. “We will look at a bank and compare it to its peers, both domestically and cross-border, and for large banks with good disclosure, over 95% of information required for a rating is public.”

As for further expansion, Theodore said that Scope does not intend to confine itself to European jurisdictions.

“We will expand further,” he said. “It is either global or it does not exist.”