March 10, 2017 / 9:05 PM / in 4 months

Fitch Affirms Slovenia at 'A-'; Stable Outlook

15 Min Read

(The following statement was released by the rating agency) PARIS/LONDON, March 10 (Fitch) Fitch Ratings has affirmed Slovenia's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'A-' with a Stable Outlook. The issue ratings on Slovenia's senior unsecured foreign- and local-currency bonds are also affirmed at 'A-'. The Outlooks on the Long-Term IDRs are Stable. The Country Ceiling is affirmed at 'AAA' and the Short-Term Foreign and Local Currency IDRs at 'F1'. The ratings on Slovenia's senior unsecured short term local currency issues have also been affirmed at 'F1'. KEY RATING DRIVERS Slovenia's 'A-' ratings are supported by a high value-added economy and high GDP per capita. European Union (EU) and eurozone memberships have supported institutional strength and investment. The ratings are constrained by the high level of government debt (80.2% of GDP in 2016) compared with the 'A' peer median, which partly reflects the legacy of the 2009 global economic crisis on the economy and the domestic banking sector. Net external debt (NXD, 24% of GDP in 2016) is high but declining rapidly, due to strong current account surpluses since 2012. Slovenia's 'A-' IDRs also reflect the following key rating drivers: GDP growth performance has been weaker than 'A' peers in recent years (at 0.8% on average in the last five years versus 2.9% for the 'A' peer median) although growth has picked up since 2014. Fitch expects annual real GDP growth to accelerate to 3% in 2017 and 2018, from 2.5% in 2016. Consumption will continue to drive growth, reflecting a strong labour market (the unemployment rate fell to 7.5% in December 2016 from 8.4% a year ago). A ramp-up in EU-fund disbursements should support a recovery in investment. Given Slovenia's economic openness, the main risk to the outlook is lower-than-expected external demand. In the medium term, Fitch expects annual GDP growth of around 2%. Fitch expects the general government deficit to narrow to 1.6% of GDP in 2017 and 1.4% in 2018, from 1.9% in 2016. The smaller deficit will primarily be driven by higher revenue from a supportive macro environment. The general election in 2018 poses some risk of fiscal slippage, including upcoming negotiations on wages in the civil service. In Fitch's view, this risk is partially mitigated by Slovenia's new fiscal framework even though the "fiscal rule" is still largely untested as it only dates from 2015. Fitch estimates government debt to have totalled 80.2% of GDP in 2016, significantly higher than 'A' peer median (52%). Debt would decline to 76% by 2018, due to the narrowing government deficit and acceleration in nominal GDP growth as inflation gradually recovers towards 2%. Active liability management led to an increase in the average weighted maturity to eight years in 2016 from 5.7 years in 2014, reducing refinancing risk. Following restructuring, recapitalisation and transfers of impaired assets to a bad bank, the capacity of the banking sector to resist shocks has improved significantly. The average capital ratio was 21.4% in 3Q16. Non performing claims (over 90 days overdue) were down at 6.5% in November 2016, from a peak at 18.1% in November 2013. The pace of contraction of banks' credit to corporates has slowed to 1% y/y in December 2016. Lending to households has been positive (4.1% y/y for housing loans in December 2016). Slovenia has recorded strong current account surpluses in recent years (estimated at 6.8% of GDP in 2016), primarily reflecting sharp corporate debt deleveraging and an associated fall in investment as well as stronger exports. This has allowed rapid reduction in NXD, which is forecast to reach 15.7% of GDP by 2018 from 24% in 2016. However, NXD is still well above the 'A' peer median (-12.4%). Fitch expects the government coalition will hold until the June 2018 general election as no party seems likely to benefit from an early election and there is no major tension between governing parties. After the fiscal consolidation in recent years, further structural reform, including supporting the sustainability of the pension system in the long-term, seems unlikely before the election. World Bank governance indicators are in line with the 'A' peer median. SOVEREIGN RATING MODEL (SRM) and QUALITATIVE OVERLAY (QO) Fitch's proprietary SRM assigns Slovenia a score equivalent to a rating of 'A' on the Long-Term Foreign Currency IDR scale. Fitch's sovereign rating committee adjusted the output from the SRM to arrive at the final Long-Term Foreign Currency IDR by applying its QO, relative to rated peers, as follows: - External finances: -1 notch: although Slovenia benefits from the euro's "reserve currency" flexibility, Fitch believes that this status would likely offer Slovenia only limited protection in case of a global or domestic financial crisis. In addition, NXD is high relative to the 'A' peer median. Fitch's SRM is the agency's proprietary multiple regression rating model that employees 18 variables based on three year-centred averages, including one year of forecasts, to produce a score equivalent to a Long-Term Foreign Currency IDR. Fitch's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM. RATING SENSITIVITIES The Stable Outlook reflects Fitch's assessment that upside and downside risks to the ratings are evenly balanced. Nonetheless, the following risk factors could, individually or collectively, trigger positive rating action: -Sustained shrinkage of government deficit or a faster decline in government debt that supports the rebuilding of fiscal policy buffers; -Stronger medium-term economic growth prospects, supported by structural reforms. The main factors that could, individually or collectively, trigger negative rating action are as follows: -A reversal in the fiscal consolidation path or failure to achieve a decline in the government debt-to-GDP; -A severe economic downturn that damages fiscal, financial or economic stability. KEY ASSUMPTIONS Given the uncertainties involved, Fitch does not assume a contribution from the realisation of returns on distressed assets held on the bad bank's balance sheet for its government debt projections. Likewise, Fitch does not take into account potential debt reduction from future privatisation proceeds. Fitch expects GDP growth in the eurozone, Slovenia's main trade partner, to be 1.7% in 2017 and 1.6% in 2018, versus 1.7% in 2016. Contact: Primary Analyst Arnaud Louis Director +33 1 44 29 91 42 Fitch Ratings S.A.S 60 rue de Monceau 75008 Paris Secondary Analyst Kit-Ling Yeung Associate Director +44 20 3530 1527 Committee Chairperson Stephen Schwartz Senior Director +852 2263 9938 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Country Ceilings (pub. 16 Aug 2016) here Sovereign Rating Criteria (pub. 18 Jul 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1020426 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below