Credit ratings agency Fitch has affirmed Bulgaria’s long-term foreign-currency credit rating at ‘BBB–‘ with a stable outlook, while the long-term local-currency rating was kept at ‘BBB’.
Earlier this month, Moody’s Investors Service and Standard&Poor’s also left Bulgaria’s ratings unchanged at Baa2 and BB+, respectively, making Fitch the only one of the three major international ratings agencies to rate Bulgaria’s creditworthiness as investment grade.
Fitch said that the country’s lower indebtedness and “a sufficient level” of foreign reserves offset the “large structural weaknesses in the economy, which constrain higher trend growth.”
Last year’s events in the banking sector – the collapse of the Corporate Commercial Bank and state liquidity support for First Investment Bank – were not systemic, but highlighted problems in corporate governance and supervision in domestically-owned banks. “The eventual implementation of a sector-wide Asset Quality Review will add much delayed clarity over the sector’s financial health, and could help restore confidence in the sector,” the agency said.
“A potentially near-term risk to Bulgaria’s banking sector relates to developments in Greece. Given the increased liquidity and solvency pressures in the Greek banking sector, Greek subsidiaries in Bulgaria cannot rely on receiving potential support from parent banks, making them a potential liability for the Bulgarian government,” according to Fitch.
(Bulgaria’s central bank has repeatedly said that it put in place safeguards to ensure the local subsidiaries of Greek lenders were insulated from developments in Greece, but then, it also said that CCB had enough liquidity to operate normally just days before the bank asked to be put under special supervision because of lack of liquidity.)
Fitch forecast economic growth at 1.2 per cent this year and 1.5 per cent in 2016, saying that structural bottlenecks continued to constrain stronger growth rates and limited Bulgaria’s convergence progress with western European standards of living.
Fitch said that it could raise Bulgaria’s ratings in case of “credible fiscal consolidation” and “sustained improvement in institutional governance”, as well as stronger economic growth. On the downside, “significant fiscal slippage”, negative economic shocks and renewed instability in the banking sector could result in a ratings downgrade.