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Global Credit Research - 01 Aug 2012
New York, August 01, 2012 -- Ratings on supranational institutions continue to be largely resilient
to the European sovereign debt crisis because their credit quality incorporates
factors beyond the strength of the support of their member states,
says Moody's Investors Service in the new report "Supranational
Ratings Resilient to European Sovereign Debt Crisis." These
factors include financial buffers and their capacity to absorb and mitigate
heightened risk.
Moody's says that the impact of the European debt crisis on an individual
supranational's credit quality also depends on the diversity of
the supranational's supporting governments, its geographic
focus and the variety of its lending and investment operations.
The new Moody's report assesses the vulnerability of the nine Moody's-rated
supranationals that are most exposed to Europe, given the characteristics
of their ownership and loan portfolios.
To date, Moody's rating actions on the European sovereigns
contributed to only a single rating action on a supranational—the
negative outlook placed on the Aaa rating of the European Financial Stability
Facility (EFSF). All other European supranationals have stable
outlooks.
The two broad categories into which the supranationals generally fall
are different in their abilities to withstand a decline in their members'
ability to support them, says Moody's.
In general, the ratings of multilateral development banks (MDBs)
can withstand a deterioration in members' ability to give support
because they hold substantial capital and liquidity buffers, with
an earnings capacity to add to them over time.
"The MDB sector is typically characterized by a dedicated,
conservative, and active risk management function in support of
the financial buffers which would have to be depleted before the MDB would
need to rely on support from members," says Moody's
in the report.
The ratings of financing facilities, the second category,
will not be able to withstand as significant a deterioration in member
support as the MDBs, says Moody's, because they do not
hold as large financial buffers and generally have less active risk management.
The report is available at http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_144364.
***
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Annette Swahla
Analyst
Sovereign Risk Group
Moody's Investors Service, Inc.
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New York, NY 10007
U.S.A.
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Bart Oosterveld
MD - Sovereign Risk
Sovereign Risk Group
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Moody's: Supranational ratings resilient to European sovereign debt crisis
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