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, including key rating assumptions and model. 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+/Positive; short-term local- and foreign-currency issuer ratings: S-3/Positive) on 28 February 2023.

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

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

Greece’s long-term ratings of BB+/Positive are underpinned by multiple credit strengths: Firstly, strong European institutional support since the Covid-19 crisis, in the form of 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 since 2022 via i) confirmation that, during the PEPP reinvestment phase tentatively through at least the end of 2024, Greek debt instruments remain eligible for purchases over and above roll-overs of redemptions; 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) announcement of an ‘anti-fragmentation’ programme to avoid excessive fragmentation in euro-area government yield spreads – supporting ECB monetary policy transmission to the Greek economy. Such measures go above and beyond those announced previously supporting Greek bond markets and demonstrate a more lasting ECB backstop for Greece potentially beyond the Covid-19 crisis.

Furthermore, a strong reduction underway in Greece’s general government debt ratio and general government deficit since 2020 represents a credit strength, supported by economic recovery, elevated inflation alongside consolidation of the primary fiscal deficit. Fiscal dynamics are further helped by past significant improvements in 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 set in motion mobilising private-sector investment, easing bottlenecks associated with weaknesses in the Greek banking system and historically low private investment. Scope estimates growth of 1.3% for 2023 before 2.0% in 2024, after 8.4% in 2021 and an estimated 4.9% in 2022.

However, Greece’s credit ratings remain challenged by: Firstly, high government debt, representing a continued vulnerability as markets reappraise risk associated with highly-indebted euro-area sovereign borrowers amid elevated inflation and central-bank rate rises. Furthermore, gradual weakening of a strong structure of debt, with higher refinancing costs, gradual transition from public back towards private ownership of the debt, and shorter average tenors of new debt, reflects a credit challenge. Secondly, banking-sector fragilities associated with lowered capital-adequacy ratios, strengthened sovereign-bank interconnections, and still elevated NPLs as compared against euro-area averages reflect a credit weakness. Finally, structural economic weaknesses in the form of modest medium-run growth potential, high unemployment, limited economic diversification, rigidities in the labour market and a weak external sector constrain ratings.

The Positive Outlook reflects risk to ratings being skewed to the upside.

The long-term ratings could be upgraded one notch to investment-grade if, individually or collectively: i) maintenance of European support for Greece reinforces assumption of enhanced permanence of European institutional backing of Greek debt markets and debt sustainability after coming elections and beyond the Covid-19 crisis; ii) nominal growth and fiscal consolidation maintains a strong and sustained downward public-debt trajectory; iii) banking-sector risks were further reduced, enhancing credit provision to the private sector; and/or iv) structural economic and external imbalances are curtailed, elevating medium-run growth potential and strengthening macroeconomic sustainability.

Conversely, the Outlooks could be revised to Stable if, individually or collectively: i) Eurosystem support for Greek debt were curtailed or proven ineffective, triggering crystallisation of more severe market scenarios; ii) fiscal policies remain loose for longer or a more severe economic downturn materialises, impeding or reversing a current trajectory of reductions of the public-debt ratio; iii) banking-sector risks re-intensify, raising risk of crystallisation of contingent liabilities onto the sovereign balance sheet; and/or iv) reform commitment weakens, such as after 2023 elections, dampening outlook for curtailment of macroeconomic imbalances and undermining contingent European support.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Rating Methodology, 27 September 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 Dennis Shen, Director.

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