Ratings agency Standard & Poor’s affirmed today sovereign credit ratings on foreign currency to BB+/B, while the long and short term – ratings on local currency were lowered to BBB-/A-3. In this area, Romania’s outlook is stable.
The agency acknowledges the improvements in Romania’s economic fundamentals, such as the declining budgetary deficit and the narrowing in the current account deficit but S&P warns that Romania is still vulnerable to external shocks. Greek and Austrian parent banks have a dominant position in the Romanian banking system. In fact, 85 percent of the total banking sector is owned by foreign institutions, with Austrian banks holding a 40 percent market-share. In the same time, subsidiaries of Greek banks account for 24 percent of capital and 14 percent of the assets in the Romanian banking sector.
However, S&P analysts consider that weakening confidence in Greek banks will not impact the Romanian subsidiaries dramatically, as the local branches are autonomous from mother banks.
The ratings agency notes that Romania will reduce its general government deficit below 5 percent in 2011, but the ambitious target of 3 percent set for 2012 may not be obtained, unless further cuts are made.
Although the general government arrears have declined to 0.2 percent of GDP, mostly at a local level, the arrears of SOEs (state-owned enterprises) total 3.4 percent of GDP.
The net external debt of government and financial – sector external assets is estimated at 67.5 percent of current account receipts at end-2011, from 25.5 percent at end-2006.
S&P mentions that a possible increase of Romania’s ratings could be obtained on the basis that the government continues to promote structural measures that would bring in additional competitiveness and economic growth.