TEXT-S&P raises Czech Export Bank FC rtgs to 'AA-/A-1+'; otlk stbl

Thu Aug 25, 2011 5:25am EDT

(The following statement was released by the ratings agency)

Aug 25 -

-- Standard & Poor's has raised the long-term foreign currency sovereign credit rating on the Czech Republic to 'AA-' and the long-term local currency rating to 'AA'.

-- We also raised the short-term foreign and local currency sovereign ratings to 'A-1+'.

-- The ratings on Czech Export Bank mirror those on the sovereign, so we are taking the same rating actions on the bank.

-- The stable outlook mirrors that on the Czech Republic and reflects our expectation that it will continue to play a critical role in the Czech government's economic development plans and policies.

Standard & Poor's Ratings Services said today it raised its foreign-currency issuer credit ratings on Czech Export Bank (CEB) to 'AA-' from 'A'. We also raised the long-term local currency rating to 'AA' from 'A+' and the short-term foreign and local currency ratings to 'A-1+'. The outlook is stable.

The rating actions follow the upgrade of the Czech Republic (foreign currency AA-/Stable/A-1+, local currency AA/Stable/A-1+; see "Czech Republic Ratings Raised Following Sovereign Criteria Change; Outlook Stable," published today on RatingsDirect on the Global Credit Portal).

The ratings on CEB are equalized with those on the Czech Republic, reflecting our opinion that there is an "almost certain", likelihood that the Czech government would provide timely and sufficient extraordinary support to CEB in case of financial distress. In accordance with our criteria for government-related entities, the "almost certain" likelihood is based on our view of CEB's:

-- "Critical" role in supporting Czech exports, which is a key factor of national economic development given the country's openness and trade dependence; and

-- "Integral" link to the Czech government through sovereign ownership, government control of the board of directors, the sovereign's statutory irrevocable guarantee for the bulk of CEB's export financing, and the inclusion of losses on CEB's interest-rate mismatches in the government's budget.

The statutory guarantee (Section 8 of Act No. 58/1995) extends only to financial resources used for export financing with state support, in accordance with the Organization for Economic Cooperation and Development consensus guidelines. It does not address timeliness. Nevertheless, we equalize the ratings because of assurances of timely and wide-ranging support by the Ministry of Finance, in conjunction with the "critical" economic role played by CEB. We also take into consideration the government's sustained track record of ensuring an appropriate level of capitalization through repeated capital injections. We expect government support to continue, if and when it is needed.

Established in March 1995, CEB is a 100% state-supported government export credit agency (ECA). As at August 2011, 80% of CEB's share capital was held by the Czech government and the remaining 20% was held by the fully state-owned Czech Export Guarantee and Insurance Corp. (not rated). By law, at least two-thirds of CEB must be owned by the state.

The stable outlook on the Czech Export Bank ratings mirrors that on the Czech Republic. Given the current cross-party consensus, Standard & Poor's expects CEB to continue to play a critical role in the Czech government's economic development plans and policies regardless of the government's composition.

This should enable the bank to maintain its public-law status, and therefore its credit support from the sovereign's guarantee. Any change in our assessment of CEB's critical role for, and integral link with, the government could lead to downward pressure on the rating.

RELATED CRITERIA AND RESEARCH

All articles listed below are available on RatingsDirect on the Global Credit Portal, unless otherwise stated.

-- Rating Government-Related Entities: Methodology And Assumptions, Dec. 9, 2010

-- Czech Republic Ratings Raised Following Sovereign Criteria Change; Outlook Stable, Aug. 24, 2011

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.