Covered bond ratings are likely to remain stable in the second half of 2017, according to S&P, thanks partly to beneficial economic and monetary conditions in the Eurozone, which the rating agency said are not only helping credit quality but also having a positive impact on issuance.

In its latest quarterly ratings review, published yesterday (Wednesday), S&P noted that it took no negative rating actions on euro-denominated covered bonds in the second quarter of 2017, and it expects this stability to continue through the second half of the year, citing improving credit conditions and expanding housing markets across Europe and noting that a historically low percentage of covered bond programmes have negative outlooks.

“Amid the many political changes and challenges, financing conditions in Europe have remained neutral to positive through the end of April,” it said. “Various central banks’ stimulus measures seemed to contribute to the region’s issuance in 2016 and its relative strength through 2017.

“These factors, combined with strengthening GDP in the region, suggest healthy issuance trends in the coming months.”

Last month the rating agency published revised criteria for rating covered bonds and RMBS backed by German, Austrian, Danish, and Swedish residential loans. Subsequently, the ratings of three mortgage covered bond programmes – those of WL Bank, Austrian Anadi Bank and Landshypotek Bank – are under review.

In January, S&P proposed changes to its methodology to incorporate the effect of resolution regimes into its covered bond ratings. These remain a work in progress, but the rating agency reiterated yesterday that, if implemented as proposed, these new criteria will have no rating impact on most covered bond programmes, all else being equal.

S&P added that it will monitor the development of the European Commission’s efforts to produce a harmonised EU covered bond framework.

S&P covered bond outlooks

Note: Includes both CreditWatch placements and outlooks; Source: S&P