Scope Ratings reviews its ratings either yearly, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations. Monitoring reviews are unrelated to the calendar that outlines public finance rating actions.

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 European Stability Mechanism (AAA/Stable; S-1+/Stable) on 26 February 2021. This monitoring note does not constitute a rating action nor indicates 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

Scope’s assignment of the European Stability Mechanism’s (ESM) AAA rating reflects the supranational’s highly rated key shareholders, substantial capital position, very high liquidity buffers and excellent capital markets access. However, the ESM’s mandate to lend to crisis-hit countries results in weak asset quality, and its shareholder base is highly concentrated. The Stable Outlook reflects Scope’s assessment of the ESM’s financial buffers to withstand external and balance-sheet-driven shocks, including those that could result from the revised ESM treaty, which, among other reforms, empowers the ESM, starting in 2022, to provide loans to the Single Resolution Fund of up to an amount equal to its target size (capped at EUR 68bn) to finance a bank resolution.

The rating could be downgraded if: i) highly rated key shareholders are downgraded; ii) liquidity buffers significantly reduced; and/or iii) the ESM recorded sustained losses via missed repayments from borrowers, resulting in a lower capital base and its preferred creditor status being effectively repealed.

The methodology applicable for the reviewed rating(s) and/or rating Outlook(s) (Supranational Entities, 11 November 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 Alvise Lennkh, Executive Director

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