Moody´s places Iceland´s credit rating on negative outlook
Moody's Investors Service yesterday changed to negative from stable the rating outlook for Iceland's Baa3 local and foreign currency government bond ratings.
The rating action was triggered by the recent Supreme Court ruling on the illegality of foreign-exchange-linked loans and government's continuing difficulties in achieving a resolution to its "Icesave" dispute with the UK and Dutch governments. Specifically, the Supreme Court ruling has the potential to cause substantial bank losses on foreign currency-denominated loans to domestic borrowers and may therefore require additional government support to the banking system. Moreover, a failure to resolve the "Icesave" dispute could lead the Nordic countries and the IMF to withhold future disbursements to the Icelandic government.
These two sources of macroeconomic uncertainty are indicative of the generally asymmetric risks facing Iceland and explains the rationale for the negative outlook on its ratings.
Moody's has also changed the outlook on Iceland's country ceiling for foreign-currency bonds of Baa2 from stable to negative. The outlook on the foreign-currency deposit ceiling of Baa3 has also been changed to negative from stable.
Conversely, the rating agency says that positive pressure on Iceland's rating could develop if there are signs of a sustained economic recovery and successful solution to the current uncertainties.
Moody´s original press release and additional rationale for the decision can be found here.
