Covered bonds will have to be rated to be eligible for own-use repo at the European Central Bank from 1 February 2020, the ECB announced on Monday, in a move that could affect over EUR13bn of issuance, according to estimates from one analyst.

Until now, CRR 129-compliant covered bonds have been able to gain eligibility by reference to issuer ratings, but this will from next year no longer be possible.

Covered bonds will require “a credit assessment assigned to either an issue or, in the absence of an issue rating from the same ECAI, the programme or issuance series under which an asset is issued”.

Based on issue amounts available via Bloomberg, more than EUR25bn of covered bonds on the ECB’s collateral list are unrated, of which some 45% have programme ratings, according to Maureen Schuller, head of financials research at ING.

“Banca Nazionale del Lavoro stands out, with almost EUR10bn of covered bonds on this list without issue or programme ratings,” she said. “Also, some Slovakian banks and German Sparkasse would not meet the issue rating requirement in the event of own-use.”

Bernd Volk, strategist at Deutsche Bank, noted that the rating requirement will make own-use repo more expensive, due to rating agency costs.

“While this increases the incentive to publicly issue covered bonds,” he added, “in our understanding, given that there is competition among rating agencies, additional costs should be limited, with the details of upcoming TLTRO III likely to be more important.”

The ECB also extended, effective 5 August 2019, the scope of the quarterly reporting it requires of rating agencies vis-à-vis covered bonds. According to DZ Bank analysts, this includes currency breakdowns, country and region breakdowns, and specific criteria for Spanish multi-cédulas.

“If the rating agencies do not comply with the reporting duties for the covered bond programmes to which they award ratings, the corresponding covered bond ratings will no longer be taken into account by the ECB,” they said.