Moody's Downgrades Slovenian Bonds Again (adds)
Frankfurt, 23 December (STA) - Global rating agency Moody's downgraded
Slovenia's government bond ratings by a notch from Aa3 to A1 on Thursday
due to expectations that the government will have to help recapitalise
banks and fears over growth prospects. This is Slovenia's second downgrade
from the agency in three months.
Frankfurt-based Moody's Investor Services said in a statement late on
Thursday that concerns that recapitalisation will further dent the
Slovenian government's balance sheet in a time of economic uncertainty
prompted its decision.
The agency said the downgrade was also brought
about by increased risk $posed by the sustained deterioration in
government funding conditions due to the euro area sovereign debt
crisis$.
The downgrade completes a review of Slovenia's
sovereign debt rating started on 23 September, when the agency first
downgraded Slovenian government bonds by a notch from Aa2 to Aa3.
The
agency added in its latest statement that the rating has been put on a
negative outlook, meaning further downgrades are possible if the risk
factors prompting this downgrade deepen.
In its latest downgrade,
Moody's says that undermined asset quality and the ongoing eurozone debt
crisis have $further exposed significant vulnerabilities in the
solvency and short term external funding and overall business model$
of Slovenia's largest banks.
It expects that the government will
therefore have to provide further support, potentially significant in size,
to the banks.
Adding to the concerns is that economic slowdown and
the risk of recession next year will add to the deterioration of asset
quality at Slovenia's largest banks, meaning that bad loans may reach 20%
of all loans by the end of 2012.
The agency therefore assesses that
the government injections to prop up the financial sector could amount to
2-8% of GDP over the coming years.
Moody's says that Slovenia's small
and open economy faces significant mid-term risks to growth. It puts this
down to general deleveraging in the eurozone and the adjustments underway
in $Slovenia's highly leveraged corporate sector, particularly in the
construction sector$.
Moreover, it also highlights the current
lack of a full-fledged government in the country, assessing that the
uncertain political majorities following the recent snap poll $point
to some challenge for the formation and stability of a new government
coalition which in turn may...delay reform measures$.
While
admitting that Slovenia's budget refinancing risk appears to be low for
2012 as the recent sale of treasury bonds and its cash reserves should
suffice for next year, the agency fears that $the highly volatile
funding conditions on the euro area bond markets represent additional
risks...in the event that financing needs exceed the original
estimates$.
