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 21 October 2024.

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. Additionally, substantial federal support measures have helped alleviate the negative impacts of the Covid-19 crisis and the Russia-Ukraine war, along with the associated energy and inflationary trends, on both the economy and the finances of Berlin.

Berlin’s AAA rating is further underpinned by the following individual credit strengths: i) a conservative budgetary management with a track record of fiscal consolidation, ii) excellent capital market access and a favourable debt profile, iii) prudent liquidity management and iv) a strong socio-economic profile.

Credit challenges relate to i) high debt levels, ii) rising budget pressures with moderate budgetary flexibility, and iii) sizeable though largely low-risk contingent liabilities, including unfunded pension commitments.

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/Outlook were downgraded; ii) changes in the institutional framework resulted in notably weaker support; and/or iii) the individual credit profile weakened significantly and structurally.

For the latest Rating Report, click here.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Sub-Sovereigns Rating Methodology, 11 October 2024) 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, Associate Director

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