October 27, 2017 / 8:03 PM / in a year

Fitch Affirms the Netherlands at 'AAA'; Outlook Stable

(The following statement was released by the rating agency) LONDON, October 27 (Fitch) Fitch Ratings has affirmed the Netherlands' Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'AAA' with a Stable Outlook. A full list of rating actions is at the end of this rating action commentary. KEY RATING DRIVERS The Netherlands' 'AAA' rating is supported by a high value-added, flexible and diversified economy, and effective institutions as reflected in World Bank governance indicators in line with the peer group median. A large current account surplus, averaging 9.4% of GDP between 2012-16, supports a strong net international investment position. The Netherlands has a high degree of financing flexibility, underpinned by its status as a core eurozone sovereign issuer with deep capital markets. General government debt, at 61.8% of GDP at end-2016, is above the 'AAA' median of 41.4% but on a firmly downward path. Fitch forecasts a slightly above-target cyclical improvement in the 2017 general government surplus to 0.8% of GDP, from 0.4% last year, driven by higher-than-budgeted tax revenues on the back of buoyant GDP growth, alongside a further 0.1pp fall in debt interest costs. This follows an improvement in the 2016 general government balance of 2.5% of GDP (or 1.7% on a structural basis, using European Commission methodology), helped by a surge in corporate tax receipts. As expected, the new government has announced a moderately expansionary, pro-cyclical fiscal plan. This comprises a EUR7.9 billion expenditure increase and a EUR6.6 billion tax cut mainly on labour and income, phased in over 2018-2021. The direct impact of the new measures has been estimated by the Netherlands Bureau for Economic Policy Analysis at -0.6pp of GDP in 2018, with a further -0.2pp in 2019 and -0.7pp in 2020. Fitch forecasts a small reduction in the 2018 general government surplus to 0.6% of GDP, followed by 0.7% of GDP surplus in 2019. Economic recovery, the return to fiscal surplus, and large negative stock-flow adjustments (totalling 5.0% of GDP between 2014-16) have seen general government debt fall from a peak of 67.9% of GDP in 2014 to a forecast 57.9% at end-2017. Under our debt sensitivity projections, which assume a gradual narrowing of the primary surplus from 1.7% of GDP this year to 0.5% in 2026, public debt falls to 49.4% of GDP in 2021 and to 43.7% in 2026. Stronger fiscal outturns over the last 18 months give us greater confidence in the sustainability of moderate primary surpluses. GDP growth accelerated sharply in 1H17, and Fitch forecasts a full-year rise of 3.2%, up from 2.2% in 2016. Growth is broad-based, with private consumption helped by a fall in unemployment to 4.7% in August from 5.7% a year earlier, higher investment on the back of strong confidence and corporate profits, and net exports making a more positive contribution. Fitch forecasts a moderation in GDP growth to 2.4% in 2018 and 1.8% in 2019 (in line with the 'AAA' median of 2.1% over 2018-19) as economic slack is absorbed, investment growth cools, and external demand softens somewhat, more than offsetting the fiscal stimulus. We assess trend growth at close to 1.4%. HICP inflation was 1.4% in August with core inflation somewhat more muted at 1.0%, and only gradual upward pressure on wages. The recovery in house prices continues, up 7.3% in the year to September (but with large regional variations), strengthening the positive feedback loop with domestic demand growth. In aggregate, house prices are still around 5% below their pre-crisis peak, and further increases are expected partly due to supply constraints and lower effective mortgage rates. Credit risks to the sovereign from the National Mortgage Guarantee Scheme have also reduced in line with the housing market recovery. We forecast another large current account surplus in 2017, of 9.1% of GDP, from 9.0% in 2016, underpinned by strong trade competitiveness, reflected in the Netherlands' growing export market share. Despite a 3.3% appreciation in the real effective exchange rate over the last six months, the 1H17 trade balance improved, as did factor income. The structural surplus is also supported by a high savings rate partly due to large corporate retained earnings, and to a drop in the investment rate following the financial crisis. We forecast a moderation in the current account surplus, to 8.6% of GDP in 2019, due to a reduction in natural gas production and further high import growth, but still above the peer group median of 5.2% of GDP. The Dutch banking sector, on which we have a stable outlook, continues to benefit from the supportive economic conditions. The sector has sound funding and capital, with CET1 further increasing to 16.1% of risk-weighted assets at end-2Q17, from 15.7% six months earlier, while the non-performing loan ratio has remained broadly flat at 2.4%. Profitability remains the key challenge but we expect that the focus on costs and non-interest income sources, as well as cyclically very low loan impairment charges, will partly offset further pressures on interest margins. More generally, sustained ultra-low interest rates could have a significant negative impact on the Dutch economy given large net household savings. The newly-formed government comprises a broad, four-party coalition, again headed by Prime Minister Mark Rutte's centre-right VVD, with a majority of just one. The Netherlands has a long history of coalition government, but the current degree of fragmentation is unusually high, and there is a risk of a weaker or more unstable government that does not see out a full term. As expected, the coalition negotiations were protracted, taking almost seven months to conclude. Early policy announcements support our view that there will be broad continuity in overall macroeconomic policy, alongside the moderate fiscal loosening. SOVEREIGN RATING MODEL (SRM) and QUALITATIVE OVERLAY (QO) Fitch's proprietary SRM assigns the Netherlands a score equivalent to a rating of 'AAA' on the Long-Term Foreign-Currency IDR scale. Fitch's sovereign rating committee did not adjust the output from the SRM to arrive at the final Long-Term Foreign-Currency IDR. Fitch's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three year-centred averages, including one year of forecasts, to produce a score equivalent to a Long-Term Foreign-Currency IDR. Fitch's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM. RATING SENSITIVITIES The Outlook is Stable. Consequently, Fitch's sensitivity analysis does not currently anticipate developments with a high likelihood of leading to a rating change. However, future developments that could, individually or collectively, result in negative rating action include: -Weak economic growth or fiscal easing that reverses the downward trajectory in public debt. -Crystallisation of sizeable contingent liabilities, for example from the national mortgage/social housing guarantee schemes, or eurozone bail-out packages. KEY ASSUMPTIONS -Fitch's long-term debt sustainability analysis assumes a primary fiscal surplus averaging 1.0% of GDP from 2017-2026, a steady increase in marginal interest rates, trend real GDP growth of 1.4%, and a GDP deflator converging to 1.8%. -Future asset sales of state-owned bank holdings are likely, but their timing and size are unclear. Fitch has incorporated a debt reducing adjustment of 0.9% of GDP in 2017, of which 0.5pp is for sale of financial assets (in line with the Draft Budgetary Plan). Beyond this, we do not assume any debt-reducing financial transactions or any additional sovereign support to the banking sector in our projections for government debt. The full list of rating actions is as follows: Long-Term Foreign-Currency IDR affirmed at 'AAA'; Outlook Stable Long-Term Local-Currency IDR affirmed at 'AAA'; Outlook Stable Short-Term Foreign-Currency IDR affirmed at 'F1+' Short-Term Local-Currency IDR affirmed at 'F1+' Country Ceiling affirmed at 'AAA' Issue ratings on long-term senior-unsecured local-currency bonds affirmed at 'AAA' Contact: Primary Analyst Douglas Winslow Director +44 20 3530 1721 Fitch Rating Limited 30 North Colonnade London E14 5GN Secondary Analyst Eugene Chiam Director +44 20 3530 1512 Committee Chairperson Paul Gamble Senior Director +44 20 3530 1623 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Country Ceilings Criteria (pub. 21 Jul 2017) here Sovereign Rating Criteria (pub. 21 Jul 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below