October 7, 2016 / 8:07 PM / 9 months ago

Fitch Affirms Norway at 'AAA'; Outlook Stable

14 Min Read

(The following statement was released by the rating agency) LONDON, October 07 (Fitch) Fitch Ratings has affirmed Norway's Long-term foreign and local currency Issuer Default Ratings (IDR) at 'AAA' with a Stable Outlook. The issue ratings on Norway's senior unsecured bonds have also been affirmed at 'AAA'. The Country Ceiling has been affirmed at 'AAA' and the Short-Term Foreign Currency and Local Currency IDRs at 'F1+'. KEY RATING DRIVERS Norway's ratings reflect the strength of the sovereign balance sheet, very high income per capita, and strong human development and governance indicators. A robust macroeconomic policy framework and strong buffers are allowing the authorities to respond to low oil prices with an expansionary policy stance. Low oil prices, resulting in declining investment in and lower demand from the oil industry have brought about a sharp slowdown in the broader economy. At the same time, there are tentative signs that the impact of this shock is easing. Quarterly GDP growth rates picked up in 1H16, while recent survey evidence points to an increased pace of real activity and improved consumer confidence. Mainland GDP (excluding oil and gas extraction and shipping) rose by 0.3% and 0.4% qoq in 1Q16 and 2Q16 in real terms. Fitch expects mainland GDP growth of 0.8% for 2016 as a whole. We then expect GDP growth to pick up to 1.6% in 2017 and 2.0% in 2018. We estimate that average real growth in the five years to 2016 has been in line with the 'AAA' median of 2%. Lower growth and the adverse impact of the oil shock on the non-oil economy have led to rising unemployment. On the standardised Labour Force Survey measure, the unemployment rate rose to 5.0% in July this year from 3.8% at end-2014. We expect unemployment to peak at the current level, before easing back over the next two years. Unemployment remains below the peer median of 5.8% for 2016. Recent cost and price developments point to downward pressure on real wages and incomes. The krone's depreciation in 2014 and 2015 pushed up import prices, leading to a rise in inflation beyond the central bank's target. We expect inflation on the harmonised HICP measure to average 4.1% this year before falling back to 2.1% by 2018, as the impact of the depreciation drops out of the annual inflation rate and with levels of real activity still below potential easing inflationary pressures. House price inflation on an annual basis slowed in 4Q15 and 1Q16, but the growth rate has picked up since, reaching 9.1% in August (with a marked dispersion across the country, with oil-producing regions still seeing price declines). Household debt as a share of disposable income reached 215% at end-2015, the highest level on record. Low interest rates imply that households' interest burden remains at historically low levels. Growth in credit to households has been stable, but growth in credit to corporates has slowed since 3Q15. Overall, the credit to GDP ratio has increased to 194% of GDP in 2Q16 from 192.6% a year earlier. Norway currently has a score of '2' (indicating moderate risk) on Fitch's Macro-Prudential Indicator (MPI) scale ranging from '1' (low risk) to '3' (high risk), and is one of only five out of 24 countries in the 'AAA' or 'AA' categories with a MPI score of 2. Fitch assesses credit growth and household debt as latent risks to sovereign creditworthiness, given the size and absorptive capacity of Norway's fiscal buffers. Bank asset quality is good, with the ratio of non-performing loans very low (1.2% at 1Q16 according to IMF data) even after the oil price shock. The Financial Supervisory Authority (FSA) has proposed a tightening of regulations on residential mortgage lending. The FSA proposes a tightening of the existing amortisation requirement, and the introduction of a debt-to-income limit of 5x gross annual income. Moreover, the amount of new loans for which banks could waive regulations (currently 10% of new loans) would be removed or retained at a lower level of 4%. The Ministry of Finance will respond to the proposals by year-end, with a view to their introduction from January. The Ministry of Finance presented its budget proposal for 2017 on October 6. The budget proposal envisages a non-oil structural deficit NOK225.6bn for 2017 (around 7% of total GDP). This is 3% of the forecast market value of the Sovereign Wealth Fund (SWF), and so consistent with the fiscal rule, which limits the non-oil deficit to 4% of the SWF. Ministry estimates suggest that the budget will provide a stimulus of around 0.4 percentage points to the economy. The budget proposal includes a moderate net cut in taxes amounting to NOK2.8bn (around 0.1% of total GDP). Fitch forecasts that the government's budget plans will translate in a decline in the general government surplus to 3.5% of GDP by 2018. SOVEREIGN RATING MODEL (SRM) and QUALITATIVE OVERLAY (QO) Fitch's proprietary SRM assigns Norway a score equivalent to a rating of 'AAA' on the Long-term FC IDR scale. Fitch's sovereign rating committee did not adjust the output from the SRM to arrive at the final LT FC 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 LT FC 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 Fitch judges Norway's credit profile as solid, implying that negative rating action in the near term is unlikely. However, the following factors could, individually or collectively, put downward pressure on the ratings: -Risks to financial stability deriving from a severe macroeconomic shock, which would be amplified by excessive credit growth or household indebtedness. -A substantial erosion of Norway's sovereign and external balance sheet strengths over the medium term. KEY ASSUMPTIONS Fitch assumes that Brent oil prices will average USD42p/b this year, USD45p/b in 2017 and USD 55p/b in 2018. Fitch assumes that the Norwegian government will continue to adhere to its fiscal policy rule. Contact: Primary Analyst Alex Muscatelli Director +44 20 3530 1695 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Kit Ling Yeung Associate Director +44 20 3530 1527 Committee Chairperson Charles Seville Senior Director +1 212 908 0277 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 (pub. 16 Aug 2016) here Sovereign Rating Criteria (pub. 18 Jul 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1012846 Solicitation Status here Endorsement Policy here ail=31 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. 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 © 2016 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