Standard and Poor's Corp lowered the long-term sovereign credit rating of Montenegro to 'BB' from 'BB+' Wednesday, citing vulnerability to economic and banking-system pressures, as well as the deteriorating quality of the country's assets.
The ratings agency said the government "is suffering a hard landing" from the recession, and expects GDP to contract by 2.5% in 2010 after a 6.7% contraction in 2009.
The ramifications of the steep contraction last year will put significant pressure on the finances of the south-eastern European country, as is the reversal of credit stimulus and the deterioration of the domestic banking system's loan book, S&P said in a statement.
These pressures, as well as the possibility for government debt to rise, led S&P to keep the outlook on the rating at negative.
"[The outlook] incorporates the possibility that substantial contingent liabilities may become real ones on Montenegro's general government balance sheet, further increasing government debt to over and above our current expectations," said Standard & Poor's credit analyst Marko Mrsnik.
However, if asset quality deterioration for the real economy and banking sector is reversed and budgetary performance were to stabilize, "we would expect to likely revise the outlook back to stable."
-By Art Patnaude, Dow Jones Newswires; +44 (0) 207 842 9259; art.patnaude@dowjones.com
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Good.
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