LONDON, February 28 (Fitch) Fitch Ratings has affirmed Denmark's
foreign and local currency Issuer Default Ratings (IDR) at 'AAA'
Outlooks. The issue ratings on Denmark's senior unsecured
foreign and local
currency bonds have also been affirmed at 'AAA'. The Country
Ceiling has been
affirmed at 'AAA' and the Short-term foreign currency IDR at
KEY RATING DRIVERS
Denmark's 'AAA' IDRs and Stable Outlook reflect the following
The track record of macro-financial stability reflected by low
inflation, current account surpluses and the stable banking
Public finances are consistent with the 'AAA' median, with the
government debt (EU-definition) estimated at 44.3% of GDP in
2013. The Danish
government's proven record of fiscal discipline strengthens
credibility for its
current medium-term fiscal strategy.
Although lacking a strong reserve currency status, the recent
has shown market confidence in Denmark's public finances and
assets. Large inflows of safe haven capital allowed the
sovereign to borrow at
historically low rates, and the government has successfully
favourable financing environment to extend the average maturity
and duration of
its debt portfolio, reducing refinancing and interest rate risk.
Danish households' high level of indebtedness is a rating
weakness (gross debt
amounted to 265% of disposable income in 2012). A high level of
offsets the high gross debt to give a positive net financial
estimated at 134% of GDP, mitigating household credit risk to
some extent, but
the illiquidity of these assets still pose some concerns for
should house prices see renewed falls or interest rates rise
sharply. The high
leverage has also led to large swings in private consumption and
growth volatility relative to most 'AAA' peers, and continues to
weigh on the
outlook for private consumption.
The economy has strong external finances compared with 'AAA'
peers, with a
persistent current account surplus, low net external debt and a
international investment position. Net external debt has been
falling since 2008
and was estimated to be 0.4% of GDP in 2013.
Major banks' balance sheets have generally remained resilient in
terms of asset
quality, capitalisation and liquidity, as reflected in the Fitch
Indicator of 'a', although profitability remains pressured due
to low interest
rates. Systemic banks performed well in recent stress tests, and
support measures introduced during the global financial crisis
unwound. The Macro-Prudential Indicator, which reflects the
build-up of systemic
risk, is currently at '1' (low risk).
The rating remains supported by the relatively wealthy, high
diverse economy. The severity of the 2009 recession and weak
recovery led to a
significant rise in unemployment, although structural
unemployment is estimated
to be moderate.
Denmark has strong and transparent institutions, which
contribute to a stable
political and economic environment, outperforming the 'AAA'
rated medians in
five out of six World Bank governance indicators. It also ranks
very highly in
the Ease of Doing Business Index.
The Outlook is Stable, reflecting Fitch's assessment that the
downside risks to
the sovereign's 'AAA' rating are currently not material.
However, the following
risk factors individually or collectively could result in a
- A further protracted stagnation of the economy (e.g.
precipitated by continued
deleveraging and renewed substantial decline in house prices)
deteriorating public finances and the financial sector.
- A material worsening of the global economic outlook and/or
Denmark's main trading partners would likely affect Denmark's
and potentially place pressure on Danish public finances and the
sector through its extensive trade and financial linkages to the
the rest of the world.
- There is a strong and broad political consensus regarding
strategy characterised by long-standing commitment to fiscal
Material deviation from this consensus or an erosion of support
resulting in a rapidly worsening fiscal position could put
pressure on the
- Fitch expects demand for Danish mortgage bonds to remain
strong in light of
the need for predominantly domestic financial institutions,
and pension funds to hold highly liquid, high-quality securities
currency. However, a significant increase in reliance on
investors for mortgage bonds could have a systemic impact on
in Denmark in the event of a period of financial stress.
The ratings and Outlooks are sensitive to a number of
Fitch's forecasts for the general government balance and debt
level are based on
the assumption that the government remains committed to its
Fitch assumes the gradual progress in deepening fiscal and
at the eurozone level will continue; key macroeconomic
imbalances within the
currency union will be slowly unwound; and eurozone governments
fiscal policy over the medium term. It also assumes that the
fragmentation of the eurozone remains low.
The Danish krone currency peg to the euro under the ERM2 is
assumed to remain in
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'Country Ceilings' dated 09 August 2013, are available at
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