Standard & Poor's Affirms Bulgaria's Credit Rating with Stable Outlook

Sofia, June 13 (BTA) - Standard & Poor's Ratings Services
affirmed its 'BB+/B' long- and short-term foreign and local
currency sovereign credit ratings on Bulgaria. The outlook is
stable, the rating agency said on its website.

"The stable outlook reflects the balance between risks we see
from potential vulnerabilities in the financial sector and
still-low government debt," the agency said. The ratings are
constrained by Bulgaria's relatively low income levels, weak
governance, worsening demographics, exchange rate regime, and
high proportion of non-lev-denominated loans, which limits the
central bank's ability to act as a lender of last resort.

The rating agency notes Bulgaria's efforts to strengthen
supervision; the current process of adopting the EU Bank
Recovery and Resolution Directive, which prescribes rules
enabling the authorities to deal with the failure of banks while
minimizing the burden on taxpayers; and the central bank's
drafting of a methodology for a comprehensive review of banks'
asset quality.

The banking sector is vulnerable to external factors, given the
large presence of Greek subsidiaries, which together account for
more than one-fifth of the sector's assets, Standard & Poor's
says. "The Bulgarian National Bank (BNB) has taken steps to
shore up the liquidity of these subsidiaries, such as mandating
higher deposits with the BNB, increasing the proportion of
liquid assets held, and reducing exposure to parent banks."

The agency says: "The stable outlook on Bulgaria reflects the
balance between the risks we see from potential vulnerabilities
in the financial sector and still-low general government debt.
We could lower the ratings if the domestic financial system
requires further government support, or if outflows on the
financial account of the balance of payments do not moderate. On
the other hand, we could consider an upgrade if Bulgaria
effectively addresses governance issues, thereby boosting its
growth potential and attracting higher foreign direct investment
to the tradables sector; or if the economy expands faster than
we anticipate, such that general government finances consolidate
more rapidly."