Moody's: Bulgaria Banking System to Keep Negative Outlook

Moody’s is likely to maintain negative outlooks for the banking systems in Bulgaria, Ukraine, Kazakhstan, Hungary, Romania and the Baltic countries. File photo

Moody's Investors Service has said that it is likely to maintain a negative outlook for most of the banking systems in 12 countries in Eastern Europe.

In its latest report, the rating agency points out that, for this year, it would likely maintain negative outlooks for banking systems in Bulgaria, Ukraine, Kazakhstan, Hungary, Romania and the Baltic countries, due to continued negative pressure on financial fundamentals and the still challenging economic environment in many of those countries.

"In light of current uncertainties in the macroeconomic environment, negative credit trends are likely to persist this year for most European emerging markets banking systems," says Armen Dallakyan, a London-based Moody's Assistant Vice President-Analyst, and co-author of the report.

Evidence of stabilization have begun to emerge in a few countries however and the agency says that the outlook for the banking systems in Poland, Russia, Slovakia and Czech Republic could be changed to stable from negative in the second half of 2010.

Moody’s said earlier this month that a ratings upgrade for the Bulgarian government is still possible in the next 12-18 months, despite the recent upward revision in last year’s fiscal gap due to hidden deficit.

According to the agency the upgrade is conditional upon fiscal consolidation that stabilizes the government's debt burden, as well as the re-emergence of sustainable economic growth.

Bulgaria's rating is currently Baa3 with a positive outlook.

Bulgaria's center-right government recently announced a larger than expected 2009 deficit caused by unaccounted procurement deals, signed by the previous Socialist-led cabinet. The previously undiscovered expenses increased the 2009 gap to 3.7% of gross domestic product (GDP) from an initial 1.9% under the EU rules.

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