Frankfurt am Main, October 07, 2011 -- Moody's Investors Service has today placed Belgium's Aa1 local and foreign
currency government bond ratings on review for possible downgrade,
while affirming its short-term ratings at Prime-1.
The main drivers that prompted the rating review are:
(1) The material increase in long-term funding risks for euro area
sovereigns with high levels of public debt, such as Belgium,
as a result of the sustained fragility in the wholesale finance environment
for euro sovereigns and banks stemming from the sovereign debt crisis.
(2) Risks of a deterioration of the public debt trajectory in light of
increasing downside risks to economic growth.
(3) The uncertainty around the impact on the already pressured balance
sheet of the government of additional bank support measures which are
likely to be needed.
Moody's review will evaluate the weight of these growing risks in light
of the country's high rating but also relative to the country's
strong credit features such as the economy's net creditor status,
high savings rate and the absence of substantial structural imbalances.
RATINGS RATIONALE
First, the fragile market sentiment that continues to surround euro
area sovereigns with high levels of debt implies materially increased
financing costs and funding risks for sovereigns and banks. Although
future policy actions within the euro area could reduce investors'
concerns and stabilize funding markets, the opposite cannot be excluded.
Even if policy actions were to succeed in the short term in returning
some degree of normality to euro area sovereign debt markets, the
underlying fragility is likely to remain and presents elements of vulnerability
for euro area sovereigns with high public debt.
Second, the challenges facing the euro area banking system,
the need for simultaneous fiscal tightening of euro area sovereigns,
together with the weakening global economic growth outlook, pose
risks to the growth outlook for the small and very open Belgian economy
which, in turn, adds uncertainty regarding the stabilization
and reversal of the public debt trajectory.
Third, given the fragility of the funding markets for sovereigns
and banks, the likelihood for the need of additional government
measures to support individual banks or the system has increased,
as illustrated by the significant challenges now facing the Dexia Group.
It is unclear how far additional support measures would be likely to weigh
on the balance sheet of the government.
FOCUS OF RATINGS REVIEW
Moody's review of Belgium's sovereign ratings will focus on the vulnerabilities
of the Belgian public debt in the current euro area sovereign and bank
funding environment. This will include a review of potential additional
need for government measures to support the banking system, or individual
banks. In this regard, Moody's intends to assess the
potential costs and additional contingent liabilities that the government
may incur in supporting the Dexia Group. During the review period
Moody's will also assess how the risks for the growth outlook of
the Belgian economy and the government's medium term fiscal and
economic plans may impact the country's debt trajectory.
Finally, we will also look into the prospects for political stability
in Belgium and how the recent agreement on the evolution of the political
framework will address the institutional weaknesses which would otherwise
have weighed on the rating and allow the incoming government the scope
needed to address the country's economic and budgetary challenges.
METHODOLOGY
The principal methodology used in this rating was Sovereign Bond Methodology
published in 2008. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not
an auditor and cannot in every instance independently verify or validate
information received in the rating process.
Please see Moody's Rating Symbols and Definitions on the Rating
Process page on www.moodys.com for further information on
the meaning of each rating category and the definition of default and
recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history. The date on
which some ratings were first released goes back to a time before Moody's
ratings were fully digitized and accurate data may not be available.
Consequently, Moody's provides a date that it believes is
the most reliable and accurate based on the information that is available
to it. Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has
issued the rating.
Alexander Kockerbeck
VP - Senior Credit Officer
Sovereign Risk Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Bart Oosterveld
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's places Belgium's Aa1 ratings on review for possible downgrade
