Scope has completed a monitoring review on the European Stability Mechanism
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 models. Scope publicly announces the completion of each monitoring review on its website.
Scope completed a monitoring review on the European Stability Mechanism (long-term foreign-currency issuer and senior unsecured debt ratings: AAA/Stable; short-term foreign-currency issuer ratings: S-1+/Stable) on 21 March 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
The European Stability Mechanism’s (ESM) AAA rating reflects the supranational’s substantial capital position, very high liquidity buffers, excellent capital markets access and highly rated shareholders. However, the ESM’s mandate to lend to crisis-hit countries results in a highly concentrated borrower base and weak profitability. The ESM’s shareholder base is also highly concentrated. The Stable Outlook reflects Scope’s assessment that the ESM’s financial buffers help it withstand external and balance sheet-driven shocks, including expected changes resulting from the revised ESM treaty. Together with other reforms, the revised treaty will empower the ESM, after ratification by all 19 ESM members (20 ESM members once Croatia formally joins), to provide loans to the Single Resolution Fund with a maximum amount of EUR 68bn to finance a bank resolution.
The Stable Outlook reflects our view that risks are balanced over the next 12 to 18 months. The ratings/Outlooks could be downgraded if, individually or collectively: i) liquidity buffers significantly decreased; ii) capitalisation ratios deteriorated significantly, for example due to a substantially weakened capital base; iii) the asset quality of the loan portfolio deteriorated significantly; and/or iv) highly rated key shareholders were downgraded.
For the updated Annex accompanying this review, click here.
The methodology applicable for the reviewed ratings and rating Outlooks (Supranational Rating Methodology, 11 August 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 Eiko Sievert, Director
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