March 28 (SeeNews) - S&P Global Ratings said on Wednesday it has raised its long-term foreign and local currency issuer credit ratings on Croatian 100% state-owned development bank Hrvatska banka za obnovu i razvitak (HBOR) to 'BB+' from 'BB', with a stable outlook.
S&P has also affirmed HBOR's short-term foreign and local currency issuer credit ratings at 'B', it said in a statement.
The upgrade reflects the similar action the ratings agency took on Croatia, when it raised its long-term rating to 'BB+' on a stronger external position on March 23.
"We equalize our ratings on HBOR with our ratings on Croatia. In our view, the sovereign is almost certain to provide timely and sufficient extraordinary support to HBOR in the event of financial distress, and we do not consider this will be subject to transition risk", S&P noted.
The ratings agency also said:
"We base our assessment of the likelihood of support on our view of HBOR's:
- Critical public policy role in implementing the government's economic, social, and political policy, namely the sustainable development of the Croatian economy and the promotion of exports. The bank's role has widened since its formation and has evolved alongside the government's strategic goals for the country's social and economic development. Since 2015, HBOR has officially been in charge of coordinating the implementation of the investment plan for Europe in cooperation with the European Investment Bank and the European Investment Fund; and
- Integral link with Croatia, demonstrated by the state's 100% ownership, regular oversight, and injections of capital. HBOR benefits from a public policy mandate and strong government support. Croatia guarantees all of HBOR's obligations unconditionally, irrevocably, and on first demand, without issuing a separate guarantee instrument, as stipulated by the HBOR Act. The government is closely involved in defining HBOR's strategy. The president of the supervisory board is the Minister of Finance, while the Minister of the Economy, Entrepreneurship, and Trade serves as the deputy president of the board. In addition, the supervisory board includes the ministers of regional development and EU funds, agriculture, and tourism, as well as other members of parliament and the chairman of the Croatian Chamber of Economy. Lastly, the government is continuing its capital injections, with the stated goal of HBOR reaching total capital of Croatian kuna (HRK) 7 billion (roughly €930 million) over the next several years.
Established in June 1992, HBOR was tasked with financing the reconstruction and development of the Croatian economy. HBOR lends to both the public and private sectors, either directly or through commercial banks. These banks onlend HBOR's funds to the ultimate borrowers, who benefit from HBOR's lower funding cost.
The stable outlook on HBOR mirrors that on Croatia. Future rating actions on Croatia will result in a similar action on the bank.
We would take a negative rating action on HBOR, regardless of any sovereign rating action, if we concluded that the bank's public policy importance for the government or the link with the government had weakened."