TIRANA, Oct. 14 – Standard and Poor’s has affirmed Albania’s ‘B/B’ Ratings with a positive outlook, withdrawing from its warning of downgrading Albania and several South East European countries, where subsidiaries of Greek banks hold a considerable share of assets after a bailout deal was reached on the Greek debt crisis.
“We believe the Albanian authorities will consolidate public finances and maintain reform momentum to comply with its International Monetary Fund Extended Fund Facility (IMF EFF) program, notwithstanding revenue slippage in 2015,” said S&P which is one of the big three credit rating agencies.
“The positive outlook reflects that we could upgrade Albania over the next six months on good fiscal performance and successful reviews of the IMF EFF program,” says S&P.
The affirmation of the rating is also positive about Albania’s efforts to borrow between 300 to 500 million euros in a Eurobond as its inaugural five-year €300 million Eurobond matures in a few weeks.
“We expect that the government will successfully refinance its Eurobond maturing in November 2015. Even if the government decides to stay out of the market, it has obtained significant amounts of external official financing to boost reserves,” says S&P.
The rating agency expects Albania’s growth to accelerate to an average of 3.7 percent between 2015 and 2017 boosted by exports, investment and consumption as domestic demand picks up.
S&P warns the ongoing debt crisis in Greece will further affect remittances from about 500,000 Albanian migrants there while the stability Albanian subsidiaries of Greek banks could be hurt if conditions in Greece further deteriorate.
“Given Albania’s links with Greece, home to a substantial Albanian population, developments there could further depress remittances, which have declined materially in recent years.”
“Subsidiaries of Greek banks maintain a sizable presence in Albania. Although the authorities have taken pre-emptive measures when necessary, should conditions deteriorate further in Greece, depositor confidence could suffer and the stability of these subsidiaries with it,” says S&P.
The credit rating agency suggests improvements in the legal system are also important in order to reduce nonperforming loans (NPLs). “The high level of NPLs in the financial sector (slightly above 20 percent of system loans) hampers lending and constrains economic recovery.”
Back in October 2014, S&P revised upward Albania’s rating for the second time in a row after a downgrade in late 2013 due to the widening of the fiscal deficit and rollover risk on increased debt stock
Meanwhile, Moody’s, another big three rating agency, has affirmed Albania’s B1 government bond rating with a stable outlook, citing the Albanian government’s fiscal consolidation and arrear repayment under an IMF deal and the EU candidate status obtained last June.
In its latest report in late 2014, Moody’s said progress with respect to structural reforms, specifically tackling corruption, the strengthening of property rights and judicial efficiency, would result in improved competitiveness and enhanced business attractiveness.
Obligations rated B are considered speculative and are subject to high credit risk. Both S&P’s B+ and Moody’s B1 ratings signify that the issuer or carrier is relatively stable with a moderate chance of default and that investors and policyholders of the rated entity are taking a low to medium risk.
