Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.

Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the Hellenic Republic (long-term local- and foreign-currency issuer and senior unsecured debt ratings: BB+/Stable; short-term local- and foreign-currency issuer ratings: S-3/Stable) on 5 July 2022.

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated ratings history can be found on www.scoperatings.com.

Key rating factors

For the updated Rating Report accompanying this review, click here.

Greece’s long-term ratings of BB+/Stable are underpinned by multiple credit strengths: Firstly, strong European institutional support since the Covid-19 crisis, in the form of supportive extraordinary monetary- and fiscal-policy interventions. These include innovations of ECB asset purchases programmes and relaxation of collateral framework requirements, such as waivers that have, since 2020, allowed for the inclusion of Greek sovereign bond instruments as collateral for ECB monetary operations alongside eligibility of Greek debt instruments under the Pandemic Emergency Purchase Programme (PEPP). Support from the ECB has been furthered this year via i) confirmation that, during PEPP’s reinvestment phase currently through at least the end of 2024, Greek debt instruments remain eligible for purchases over and above roll-over of redemptions in the case called for by market conditions; ii) extension of a waiver with respect to collateral eligibility of Greek bonds under the Eurosystem Credit Assessment Framework until at least conclusion of the PEPP reinvestment phase; and iii) development of an ‘anti-fragmentation’ programme to avoid the excessive fragmentation of euro-area government yield spreads – in support of ECB monetary policy transmission to the Greek economy. These measures go above and beyond measures as announced previously in support of Greek bond markets and demonstrate a more lasting ECB back-stop for Greece beyond only the Covid-19 crisis.

Furthermore, a stronger-than-anticipated reduction underway in Greece’s public debt ratio and general government deficit since 2020 represents a credit strength, supported by robust economic recovery, elevated inflation alongside consolidation of the primary fiscal deficit. Fiscal dynamics are further supported by past significant improvements of the public debt structure. Finally, structural reform policies have significantly curtailed high non-performing loan (NPL) ratios and enhanced banking-system stability while policies have been placed in motion that mobilise private-sector investment, easing bottlenecks as associated with weaknesses of the banking system and historically low private investment – boosting economic recovery. Scope estimates economic growth of 4.9% in 2022, raised from 3.4% under April 2022 estimates, before 2.1% in 2023 (cut from 2.3%), after an 8.3% recovery of 2021.

However, Greece’s credit ratings are challenged by: i) a very high government debt stock, representing a continued contingent vulnerability as markets continue reappraisal of risk associated with elevated inflation, normalisation of central-bank rates policy and debt sustainability of vulnerable euro-area sovereign borrowers; ii) banking-sector fragilities as associated with high NPL stocks on domestic bank balance sheets, despite substantive reductions underway, and continued risk surrounding sovereign-bank interconnections; and iii) structural economic weaknesses in the form of tepid medium-run growth potential, high unemployment, limited economic diversification, rigidities of the labour market and a weak external sector.

The Stable Outlook represents Scope’s opinion that risks to the sovereign ratings are balanced.

The ratings/Outlooks could be upgraded if, individually or collectively: i) Eurosystem support for Greek debt instruments were further reinforced – such as successful implementation of an anti-fragmentation programme; ii) fiscal consolidation and economic recovery see the continuation of a strong and sustained downward debt trajectory; iii) structural economic and external imbalances are curtailed, raising medium-run real growth potential and strengthening macroeconomic sustainability; and/or iv) banking-sector risks were further reduced, enhancing credit provision to the private sector.

Conversely, the ratings/Outlooks could be downgraded if, individually or collectively: i) Eurosystem support for Greek debt were curtailed, even under adverse market scenarios; ii) fiscal policies were to remain loose for longer or a more severe economic downturn materialises, impeding a current trajectory of reductions of the public-debt ratio; iii) reform commitment weakens, such as after conclusion of the post-bailout enhanced surveillance programme or after elections, dampening an outlook for curtailment of macroeconomic imbalances and undermining contingent European support; and/or iv) banking sector risks re-intensify, raising risk of crystallisation of contingent liabilities onto the sovereign balance sheet.

The methodology applicable for the reviewed rating(s) and/or rating Outlook(s) (Sovereign Ratings, 8 October 2021) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Dennis Shen, Director.

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