August 12, 2014 / 1:10 PM / in 3 years

Fitch Updates Sovereign Rating Criteria & Model; No Rating Impact

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Sovereign Rating Criteria here LONDON, August 12 (Fitch) Fitch Ratings has updated its Sovereign Rating Criteria. The update contains no substantive changes and will have no impact on existing ratings. Similarly, the update to the agency's proprietary Sovereign Rating Model (SRM) will have no impact on existing ratings. Fitch's approach to sovereign ratings continues to be driven by a synthesis of qualitative and quantitative judgements that capture the willingness as well as the capacity of a sovereign issuer to meet its debt obligations. Additionally, Fitch's sovereign rating analysis incorporates a wider range of factors than only the financial strength of the sovereign and includes an assessment of: --Macroeconomic performance, policies and prospects; --Structural features of the economy that render it more or less vulnerable to shocks, including the risks to macroeconomic stability and public finances posed by the financial sector, as well as political risk and governance factors; --Public finances, including the structure and sustainability of public debt as well as fiscal financing; and --External finances, with a particular focus on the sustainability of international trade balances, current account funding and capital flows, and the level and structure of external debt (public and private). The principal clarifications and amendments to the existing Sovereign Rating Criteria are as follows: --Clarification that our approach to sovereign analysis involves rating through the economic cycle; --More transparent and logical presentation of what constitutes a default event for sovereign issuers; --Greater transparency on the disclosure of weights assigned to the principal analytical factors in the SRM; --Additional commentary on the reasons for the non-linear correlation between high public debt levels and sovereign creditworthiness, and more detailed information on our approach to assessing the risks around contingent liabilities for sovereign issuers; --Introduction of language that elaborates on our approach to crisis situations that involve support being provided by the official sector. As part of the SRM update, Fitch has incorporated additional ratings and economic data into the model's estimation sample and made the following changes to the set of explanatory variables used in the model: --Imposing that reserves (months' cover of current external payments) only have an effect for sovereigns without reserve currency flexibility; --Replacing sovereign external debt (% of gross external debt) with sovereign net foreign assets (% of GDP); --Including size (natural logarithm of share in world GDP) as a new explanatory variable in the model; and --Expanding the composite governance indicator used in the model to include rankings according to the World Bank indicators 'Regulatory Quality' and 'Political Stability and Absence of Violence'. The criteria report titled 'Sovereign Rating Criteria' is available at and replaces the report of the same name dated 13 August 2012. The 'Sovereign Rating Model' is also available at and replaces the report of the same name dated 11 September 2012. Contact: Tony Stringer Managing Director +44 20 3530 1219 Fitch Ratings Limited 30 North Colonnade London E14 5GN James McCormack Managing Director +44 20 3530 1286 Krisjanis Krustins Research Analyst +44 20 3530 1487 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Additional information is available on Applicable Criteria and Related Research: Sovereign Rating Model here Country Ceilings here Rating Non-Financial Corporates Above the Country Ceiling here Distressed Debt Exchange here Macro-Prudential Risk Monitor - June 2014 here Fitch Ratings Approach to CRA 3 for Sovereigns here Why Sovereigns Can Default on Local Currency Debt 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 WEBSITE '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. 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.

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