DBRS Confirms Hellenic Republic Rating at CCC (high), Stable

On 9th December, DBRS Ratings Limited (DBRS) confirmed the Hellenic Republic’s Long-Term Foreign and Local Currency Issuer Ratings at CCC (high) and its Short-Term Foreign and Local Currency Issuer Ratings at R-5. The trend on all ratings remains Stable.

The CCC (high) rating reflects Greece’s very high level of public sector debt and the political challenge the Greek authorities and the institutional creditors face in placing this debt on a downward path. Progress has been made in easing capital controls imposed in 2015 and in improving financial institutions’ liquidity. However, DBRS remains concerned about banks’ asset quality and the adverse impact of the high level of impaired loans on the ability of the banking system to support the economy and employment growth in the future.

The Stable trend reflects our view that the current official sector financial support programme for Greece continues to reinforce stabilization of the economy and the banking sector. Past funds disbursements from the three-year €86 billion Third Adjustment Programme have eased the financial sector liquidity squeeze and, some early signs of economic recovery are emerging. The pending second review, on completion, should release additional funds to support both the real economy and the banking sector’s improved financial health.

Greece’s credit strengths include the benefits of Eurozone membership and access to financial support from the European institutions. Since 2009, the country has implemented a significant fiscal adjustment. In addition, progress has been made with structural reforms, including improvements in the labour market, reform of the tax code and streamlining the public administration. The external sector has also strengthened, with the conversion of the current account from a large deficit into a small surplus.

However, credit challenges are considerable. While some early signs of economic recovery exist, Greece continues to face challenges in restoring financial stability and returning to sustainable growth, while consolidating public finances under a fragile coalition government. Meeting the fiscal and structural reform adjustments of the programme amid social constraints and a slim three-seat majority in the parliament continue to be challenging.

Following the recapitalization of the banking sector in 2015, bank balance sheets remain weak and non-performing loans are very high. On the other hand, the persistent withdrawal of bank deposits has stabilized and over the last six months bank deposits have been increasing. Moreover, capital controls introduced in June 2015 have been partially lifted. However, credit growth to the domestic private sector remains on a declining trend and the economic recovery is at very early stages and vulnerable to adverse political events.

RATING DRIVERS

Triggers for a rating upgrade include: 1) continued co-operation between Greece and its official creditors with fiscal and structural reforms; 2) a clearer view of external financing beyond the current third programme’s completion in August 2018; 3) clearing of public sector arrears; 4) economic recovery.
Triggers for a rating downgrade include: 1) lack of co-operation with the institutional creditors; 2) external debt service payment arrears; 3) renewed financial sector instability.

Notes:
All figures are in Euros unless otherwise noted.

The principal applicable methodology is Rating Sovereign Governments, which can be found on the DBRS website under Methodologies. The principal applicable rating policies are Commercial Paper and Short-Term Debt, and Short-Term and Long-Term Rating Relationships, which can be found on our website under Rating Scales. These can be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies

The sources of information used for this rating include World Bank, IMF, EC, ECB, Eurostat, Ministry of Finance, PDMA, Bank of Greece, Haver Analytics, Ministry of Interior and Administrative Reconstruction. DBRS considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

This is an unsolicited credit rating. This credit rating was not initiated at the request of the issuer.

This rating included participation by the rated entity or any related third party. DBRS had no access to relevant internal documents for the rated entity or a related third party.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

Generally, the conditions that lead to the assignment of a Negative or Positive Trend are resolved within a twelve month period. DBRS’s outlooks and ratings are under regular surveillance.

For further information on DBRS historical default rates published by the European Securities and Markets Authority (“ESMA”) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Lead Analyst: Nichola James, Co-Head of Sovereign Ratings, Global Sovereign Ratings
Rating Committee Chair: Roger Lister, Chief Credit Officer, Global FIG and
Sovereign Ratings
Initial Rating Date: 16 August 2013
Last Rating Date: 10 June 2016

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