December 1, 2017 / 9:24 PM / a year ago

Fitch Upgrades Bulgaria to 'BBB'; Outlook Stable

(The following statement was released by the rating agency) LONDON, December 01 (Fitch) Fitch Ratings has upgraded Bulgaria's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) to 'BBB' from 'BBB-'. The Outlooks are Stable. A full list of rating actions is at the end of this rating action commentary. KEY RATING DRIVERS The upgrade of Bulgaria's IDRs reflects the following key rating drivers and their relative weights: High A prolonged decline in external debt ratios has led Bulgaria's external finance metrics to outperform the majority of its 'BBB' peers. Including data revisions, Bulgaria's net external creditor position strengthened to 8.6% of GDP in 2016 from a net debtor position of 2.1% of GDP in 2015. Bulgaria's net creditor position is forecast to strengthen further, staying above the 'BBB' median net creditor position of 0.8% of GDP. Current account surpluses averaging 3.4% of GDP are also forecast for 2017-2019, supported by gains in export competitiveness and a diversifying export base. This compares with the 'BBB' median current account deficit of 1.2% of GDP. Bulgaria's sovereign external buffer continues to strengthen as reserves climb. Foreign reserves represent 49.7% of GDP, equivalent to 10 months of imports. An external liquidity ratio of 215% (end-2016) provides more than adequate liquidity support for Bulgaria's long-standing and credible currency board regime. Medium Budget outturns are stronger than peers. Compared with the previous forecast for a deficit of 0.6% of GDP, Fitch now forecasts the general government budget to balance in 2017, as was the case in 2016. For 2018-2019, budget measures that will increase spending on pensions, salaries, defense and social welfare will result in small fiscal deficits, but primary fiscal surpluses will be maintained. General government debt/GDP is low relative to peers and on a downward trajectory. Projected primary surpluses will contribute to further government debt reduction, with debt forecast to stay below 25% of GDP for 2017-2019, significantly lower than the 'BBB' category median of 41.2%. Public debt sustainability is supported by the sovereign's low level of interest payments to revenues (2.3% compared with a peer median of 7.3%) and relatively long average debt maturity. Economic growth is strengthening. After average growth of 1.1% over 2010-14, Fitch forecasts average growth of 3.6% in 2017-19, an upward revision of 0.5pps from six months ago, and above the five-year median (3.2%) of its 'BBB' peers. Risks to Fitch's forecast are balanced and highly dependent on both private and public sector investment activity. Higher growth may come from better-than-forecast public expenditure of EU structural funds and/or resumption of credit growth. An underperformance of both factors would risk lower economic growth. Bulgaria's 'BBB' IDRs also reflect the following key rating drivers: Fitch views the risk of domestic banking sector contingent liabilities materialising on the sovereign's balance sheet to have reduced. This reflects banks' solid capital buffers, strong liquidity, stable deposit-based funding and moderate profitability. These factors mitigate the risks stemming from the high stock of legacy bad debts in banks' loan books. The ratio of NPLs to total loans (excluding exposure to banks) was 16.6% at end-3Q17 and is likely to remain the highest in the region. Authorities have begun to address regulatory gaps and improve bank supervision. Bulgaria's GDP per capita still lags the median level of 'BBB' peers and higher rated sovereigns. Progress in income convergence will depend on how effectively authorities push ahead with structural reform. Labour market rigidities remain a key challenge in view of worsening demographics. Bulgaria's governance indicators are in line with its 'BBB' category peers. There is broad-based political consensus in favour of integration with the rest of the EU, although progress in effective policy making is vulnerable to a changeable political environment, given the country's history of unstable governments. However, with Bulgaria's upcoming presidency of the EU council beginning 1 January 2018, Fitch's baseline is for the current GERB-United Patriots coalition under Prime Minister Boyko Borissov to remain stable. SOVEREIGN RATING MODEL (SRM) and QUALITATIVE OVERLAY (QO) Fitch's proprietary SRM assigns Bulgaria a score equivalent to a rating of 'BBB+' on the Long-Term FC IDR scale. Fitch's sovereign rating committee adjusted the output from the SRM to arrive at the final LT FC IDR by applying its QO, relative to rated peers, as follows: -Macroeconomics: -1 notch, to reflect Fitch's view that the SRM is currently benefitting from a cyclical economic upswing, and that sustained and higher potential growth is limited by Bulgaria's structural economic competitiveness challenges, particularly labour market rigidities and adverse demographic trends. Fitch's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three year centred averages, including one year of forecasts, to produce a score equivalent to a LT FC 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 main factors that could, individually or collectively, could lead to positive rating action are: -Stronger medium-term GDP growth potential. -Progressive convergence towards income levels of higher rated peers. The main factors that could, individually or collectively, could lead to negative rating action are: -Re-emergence of external imbalances, for example from prolonged widening of the current account deficit and/or deterioration of external competiveness. -Higher fiscal deficits that result in deterioration of the public debt trajectory. -Materialisation of contingent liabilities on the sovereign's balance sheet; for example, from state-owned enterprises. KEY ASSUMPTIONS -Fitch assumes the Bulgarian authorities will maintain continuity in economic, fiscal and policies, and in relations with the EU. -The global economy performs in line with Fitch's Global Economic Outlook. The full list of rating actions is as follows: Long-Term Foreign-Currency IDR upgraded to 'BBB' from 'BBB-'; Outlook Stable Long-Term Local-Currency IDR upgraded to 'BBB' from 'BBB-'; Outlook Stable Short-Term Foreign-Currency IDR upgraded to 'F2' from 'F3' Short-Term Local-Currency IDR upgraded to 'F2' from 'F3' Country Ceiling upgraded to 'A-' from 'BBB+' Issue ratings on long-term senior unsecured debt upgraded to 'BBB' from 'BBB-' Contact: Primary Analyst Kit Ling Yeung Associate Director +44 20 3530 1527 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Paul Gamble Senior Director +44 20 3530 1623 Committee Chairperson Charles Seville Senior Director +1 212 908 0277 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Additional information is available on Applicable Criteria Country Ceilings Criteria (pub. 21 Jul 2017) here Sovereign Rating Criteria (pub. 21 Jul 2017) here Related Research Bulgaria - Rating Action Report here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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 © 2017 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