Standard and Poor’s Ratings Services announced on Monday that it had lowered Hungary’s long- and short-term foreign- and local-currency sovereign credit ratings to ‘BBB/A-3’ with a negative outlook from ‘BBB+/A-2’. The move follows downgrades by Moody’s on November 7 and by Fitch on November 10.
Standard and Poor’s said it had removed Hungary’s ratings from CreditWatch with negative implications, where they were placed on October 15, 2008. At the same time, Standard and Poor’s lowered its long- and short-term issuer credit ratings on the City of Budapest to ‘BBB/A-3’ with a negative outlook from ‘BBB+/A-2’.
Standard and Poor’s credit analyst Kai Stukenbrock said “The downgrade reflects the adverse impact of a deteriorating international financial and economic environment on the Hungarian economy. Dependence on external financing inflows as well as the high stock of government debt make Hungary particularly vulnerable to weakening risk appetite.”
Standard and Poor’s said that limited availability of external funding, reduced external demand and a sharp slowdown in domestic lending will bring about an abrupt economic correction, and a contraction of economic activity. Standard and Poor’s added that with access to foreign funding limited, domestic lending will slow down markedly in 2009, while domestic demand will have to contract to facilitate the necessary correction of the high current account deficit. The ratings service said it expects negative economic growth of 2pc in 2009.
Standard and Poor’s said that the negative outlook reflects the predominantly downside risks to the ratings. The ratings service added that economic contraction is expected to put pressure on private and public sector balance sheets, while the quality of financial institutions’ loan portfolios will deteriorate amid a decrease in the availability of funding.
Stukenbrock said “The ratings on Hungary could be lowered further if the economic adjustment were to prove more disruptive than currently expected or if political support for fiscal consolidation were to falter.” Sukenbrock added that “Higher than anticipated stress in the financial sector and the need for significant public resources to recapitalize weak banks would increase downward pressure on the ratings.”
Moody’s Investors Service lowered Hungary’s local- and foreign-currency government-bond ratings and the country ceiling for foreign- currency bank deposits to A3 with negative outlook from A2 on November 7. Fitch downgraded Hungary’s long-term foreign-currency Issuer Default Rating (IDR) to ‘BBB’ Stable Outlook from ‘BBB+’ Negative Outlook, its long-term local-currency rating to ‘BBB+’ Stable Outlook from ‘A-’ Negative Outlook, its short-term foreign-currency rating to ‘F3’ from ‘F2’ and its country ceiling to ‘A’ from ‘A+’ on November 10. Moody’s announced on November 11 that it had downgraded the foreign- and local-currency ratings of the city of Budapest to A3 from A2. (MTI-Eco)