Scope Ratings reviews its ratings either yearly, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations. Scope performs monitoring reviews to determine whether outstanding ratings remains proportionate. Monitoring reviews are conducted either by performing a portfolio review in terms of the applicable methodology/ies, latest developments, and the rated entity’s financial and operational aspects relative to similarly rated peers; or through targeted reviews on an individual credit. Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the Czech Republic (AA/Stable; S-1+/Stable) on 15 February 2021, incorporating the update from the sovereign methodology. The review resulted in no action on the assigned ratings. This monitoring note does not constitute a rating action nor does it indicate the likelihood of a credit rating action in the short term. The latest information on the credit ratings in this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

Czech Republic’s AA/Stable ratings are underpinned by i) robust public finances, sound fiscal policies and a substantial liquidity buffer, resulting in considerable fiscal space; ii) steady economic performance and a competitive industrial base, as evidenced by high FDI inflows and low unemployment; and iii) a well-capitalised domestic banking sector with strong profitability and good asset quality, which underpin the sector’s resilience to rising impairment losses and the impact of the central bank’s policy rate cuts on interest profits. The Czech Republic’s highly open economy with large exposure to cyclical industries has been severely affected by the Covid-19 pandemic and associated mitigation measures. A large and effective set of fiscal intervention to support the healthcare sector, businesses and households cushion the economy from the pandemic’s impact. These factors, combined with the unprecedented EU-wide monetary and fiscal stimulus in response to the crisis, underpin Scope’s view that the country is well positioned to weather the Covid-19 crisis and will return to robust growth from 2021 onward. Against these strengths, the rating considers structural challenges posed by i) an economic structure reliant on foreign funding and external demand, weighing on macroeconomic sustainability; and ii) the country’s rapidly ageing population, which limits potential growth and weighs on the sustainability of the pension system.

For the updated scorecards accompanying this review, click here.

The methodology applicable for the reviewed rating(s) and/or rating Outlook(s) (Sovereign Ratings, 9 October 2020) is available on https://www.scoperatings.com/#!methodology/list.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Jakob Suwalski, Director.

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