Scope has completed a monitoring review for the Land of Berlin
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 Land of Berlin (long-term local- and foreign-currency issuer and senior unsecured debt ratings: AAA/Stable; short-term local- and foreign-currency issuer rating: S-1+/Stable) on 5 December 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 rating history can be found on www.scoperatings.com.
Key rating factors
The AAA rating is underpinned by the highly integrated institutional framework under which Berlin operates, characterised by a very strong revenue equalisation system and the federal solidarity principle, which results in a close alignment of Länder’s creditworthiness with the German federal government’s AAA/Stable ratings. The rating also reflects Berlin’s conservative budgetary management, favourable debt profile, excellent capital market access, prudent liquidity management and strong economic base. In addition, sizeable federal support measures have mitigated the adverse effects of the Covid-19 crisis and the Russia-Ukraine war on the economy and Berlin’s finances.
Credit challenges relate to high direct debt, low revenue flexibility given limited leeway to adjust revenue via own taxes, unfunded pension commitments weighing on long-term expenditure flexibility as well as sizeable, though low-risk, contingent liabilities.
The Stable Outlook represents Scope’s view that risks to the ratings over the next 12 to 18 months are balanced. The ratings could be downgraded if: i) the German sovereign rating were downgraded; ii) changes affected the institutional framework, resulting in notably weaker support; and/or iii) the individual credit profile deteriorated significantly and structurally.
For the associated Review Annex, click here.
The methodology applicable for the reviewed rating(s) and/or rating Outlook(s) (Sub-sovereigns Rating Methodology, 11 October 2022) 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: Julian Zimmermann, Senior Analyst
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