S&P: Private Sector Debt Keeps Banking Credit Risk Moderately High
Ratings agency Standard and Poor's said Estonian banking sector country risk remained at a level of six on a scale of one to ten - a couple points off of Central Europe's economic leaders.
The ranking puts the country in the same group as Bahrain, Croatia and Guatemala. (For comparison, Greece fell from 7 to a "perfect" 10.)
S&P also upgraded Estonia's economic risk score to "5" from "6" and and assigned an industry risk score of "7."
"Credit risk in the Estonian economy is high, in our opinion," S&P said in its statement on the BICRA, or Banking Industry Country Risk Assessment action on November 9. "We see substantial private sector leverage given the per capita income of about 16,000 US dollars. Further, the high ratio of private sector debt to GDP weighs on our assessment of Estonia's credit risks."
But S&P added that Estonia has tightened previously looser policies on lending. It said performance in the post-recessionary phase has been good and praised the country's "Nordic" regulatory environment due to the fact that four Nordic banks dominate the market.
It also said Estonia's payment culture and rule of law are better than Central Europe.
Kristopher Rikken