LONDON, January 17 (Fitch) Fitch Ratings has affirmed The
foreign and local currency Issuer Default Rating (IDRs) at
'AAA'. The Outlooks
are Negative. The issue ratings on The Netherlands' unsecured
foreign and local
currency bonds have also been affirmed at 'AAA'. The agency has
The Netherlands' Short-term foreign-currency IDR at 'F1+' and
Ceiling at 'AAA'.
KEY RATING DRIVERS
The affirmation reflects the Netherlands' strong underlying
institutional and credit fundamentals, including its consistent
surpluses and positive net international investment position, as
well as its
strong financing flexibility. The Outlook remains Negative due
to the weak GDP
growth outlook. This will constrain fiscal consolidation,
hampering public debt
The affirmation also reflects the following key rating drivers:
The country's flexible, diversified, high value-added and
benefits from strong domestic institutions, a track record of
management and historically broad public and political consensus
in support of
fiscal discipline. Building this consensus has been more
challenging of late,
but political parties still achieved an agreement on the 2014
Fitch considers financing risk is very low, reflecting an
average debt maturity
of seven years, low borrowing costs and strong financing
by The Netherlands' status as a core eurozone sovereign issuer,
The banking sector has been resilient to the prolonged housing
and Fitch expects it should remain so. The main problems for
Dutch banks' asset
quality are commercial real estate exposures and the SME
segment. The former has
been a concern, particularly following the nationalisation of
SNS Bank in
February 2013, and the latter has been hit by the extended
period of weak
economic conditions. However, Fitch does not expect these issues
to be large
enough to result in additional sovereign bail-outs.
House prices have fallen by 20% from the peak in 2008. This
sharp adjustment has
exacerbated the effects of the slump in gross disposable income
and left around
25% of mortgages in negative equity. Fitch's baseline is that
the correction in
the housing market will bottom out in mid-2014. Recent figures
seem to support
our view. The pace of decline slowed in 3Q13, accompanied by a
transactions. The negative wealth effect from the housing market
therefore ease in 2014.
The Negative Outlook on The Netherlands' Long-term foreign and
IDRs reflects the following factors:
Public debt dynamics have worsened over time but remain within
the tolerance for
a 'AAA' rating. Fitch's public debt sensitivity analysis is
from the previous rating review (August 2013). Fitch forecasts
government gross debt (GGGD) to peak at 80% of GDP in 2018-19
and decline only
slowly over the medium term, remaining at 76% of GDP by 2022.
In recent months, there have been some signs of recovery. In
3Q13, real GDP grew
by 0.2% on a quarterly basis after nine consecutive quarters of
the exception of 2Q12 when real GDP grew by 0.5% qoq). High
suggest that growth should have accelerated further in 4Q.
expects the Dutch recovery to be slow due to headwinds from
deleveraging, declining house prices, and fiscal consolidation.
forecasts are for the economy to stagnate in 2014 and to grow by
1% in 2015
(unchanged from our previous rating review). A strengthening
in the eurozone represents some potential upside risk to our
In Fitch's view, households will remain a drag on recovery. Real
income has shrunk markedly since 2007 while household
liabilities have continued
to rise. Dutch households are highly leveraged and levels of
debt have started
to decline only in 2013. The unwinding of these large domestic
particularly challenging and will continue to weigh on domestic
significantly limiting the economy's shock-absorbing capacity.
Gross household debt to income is substantially higher in The
relative to the eurozone average (250% vs 99%). Although gross
household debt is
high, it is more than offset by net household financial assets.
wealth to income was 376% in 2012, the highest in the eurozone.
To date, the
strong net worth position of Dutch households has been unable to
negative wealth effects arising from the decline in house
prices, reflecting the
relatively low liquidity of individuals' financial assets.
The Negative Outlook reflects the following risk factors that
or collectively, result in a downgrade of the ratings:
- Material deterioration in Fitch's debt dynamics forecasts
resulting in debt
peaking higher and later relative to the current baseline (peak
of 80% of GDP in
2018) or failing to be placed on a downward path thereafter.
- Material weakening in macroeconomic projections, for example
caused by further
deterioration in the housing market.
- Crystallisation of substantial amounts of contingent
liabilities arising from
a range of potential sources, including the banking sector (for
example as a
result of the ECB Comprehensive Assessment), the Nationale
(NHG) mortgage guarantee scheme or eurozone bail-out packages.
- Adverse political developments leading to policy uncertainty,
undermine confidence in fiscal and economic prospects.
Future developments that may, individually or collectively, lead
to the Outlook
being revised to Stable include:
- General improvement in macroeconomic performance including
further signs of
stabilisation in the housing market.
- Greater confidence that the GGGD/GDP ratio will stabilise in
line with Fitch's
baseline and be placed on a downward path over the medium term.
There is uncertainty over near and medium-term projections for
Fitch forecasts the Dutch economy to stagnate in 2014 and grow
by 1% in 2015.
Fitch's forecast for 2014 is below consensus (0.4%) mainly due
to a more
pessimistic outlook for private consumption. The OECD is
contraction of 0.1% for 2014. Conversely, our 2015 forecasts are
in line with
those of OECD and the European Commission (0.9%).
Fitch assumes that the nationalisation of SNS REAAL and its
SNS Bank will have had a one-off fiscal impact in 2013.
Moreover, the agency is
not factoring additional support to the banking sector in its
analysis from 2014 onwards.
Fitch assumes there will not be additional liabilities related
recapitalisations as a result of the ECB's Comprehensive
Fitch assumes that the Dutch sovereign will continue to access
market funding at
low interest rates. Under Fitch's Sovereign Rating Criteria and
sovereigns are assessed to have a somewhat lower debt tolerance
for a given
rating than non-EMU peers with their own reserve currencies and
banks willing and able to intervene in sovereign debt markets.
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.
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Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530
Additional information is available on www.fitchratings.com
Applicable criteria, 'Sovereign Rating Criteria' dated 13 August
'Country Ceilings' dated 09 August 2013, are available at
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