Credit ratings agency Fitch Ratings said it affirmed Bulgaria’s sovereign ratings at BBB-, with a stable outlook. This is the second time Fitch has done so in 2014.
The latest rating action comes shortly after the two largest domestically-owned lenders became the target of bank runs on deposits, developments that Fitch said “highlight long-standing risks about corporate governance and related-party lending, which in turn weaken the business environment.”
Fitch said that Corporate Commercial Bank was put “under conservatorship after a dispute among stakeholders led to a deposit outflow”, while First Investment Bank’s “relatively strong liquidity and capital” allowed the lender to withstand the deposit outflow.
Once again, Fitch noted that “trend growth remains subdued compared with ‘BBB’ peers”, saying that “structural bottlenecks continue to prevent the stronger growth rates that would support faster convergence with western European standards of living.”
“Moreover, the economy has been experiencing the deepest deflation in the EU bar Greece, related partly to exogenous food and energy price developments,” the ratings agency said.
Bulgaria could see a ratings increase if the country were to achieve a “substantial reduction in extern indebtedness” or if it were to pursue “key structural reforms to the business environment, including infrastructure, education and health, leading in turn to stronger trend GDP growth and progressive convergence towards average EU income levels.”
On the downside, the main risks were a “macroeconomic or geopolitical shock that damages the small and open Bulgarian economy” and “significant slippage relative to official fiscal targets, or the emergence of instability in the banking sector.”
(Photo: Ivan Philipov)