In order to extend the scope of the CRA Code of Conduct to areas of the EthiFinance Group that collaborate with CRA activity, the code has been updated.

EthiFinance Ratings is launching a request for comments for its new Debt Investment Funds Rating (DIF) methodology and is inviting market participants to submit their comments and suggestions.

The Request for Comments period is starting on 22nd of July and is expected to last until 22nd of August. Unless specified otherwise, these comments will be considered as public. Comments should be submitted at the following email address: rfc@ethifinance.com. The final version is expected to be published and implemented in Q4 2024.

This methodology details the process by which EthiFinance Ratings (EFR) assigns ratings to the debt issued by either the master fund (MF) which holds the underlying loans, or its corresponding feeder fund which has an interest/investment in the MF in the form of a limited partner (LP). The final rating will result from the assessment of the Anchor Rating and the Modifiers. The analysis will be split into these two phases. While this methodology provides a largely prescriptive approach to evaluate the DIF’s credit quality, EthiFinance’s analytical process also includes judgments made by analysts. The analysts must also consider the specifics of each case as well as comparisons with similar instruments. Therefore, this methodology should be understood as a general framework that EthiFinance analysts use in tandem with their expertise to arrive at the final rating.

EthiFinance Ratings, an independent European rating agency, has once again received the Analyst Forecast Awards from the economic analysis entity FocusEconomics, in the Fiscal Balance category for Spain, recognizing the company’s work for the fourth consecutive year and for the third time in this specific category.

Specifically, the award recognizes EthiFinance Ratings’ specific expertise and accuracy in Real Sector forecasting, as well as the company’s analysts’ in-depth knowledge of the specific factors that influence the sector and their ability to make accurate forecasts in this area.

“Our forecasting models are based on the use of complex macroeconomic techniques with external and internal data related to business behavior, the macroeconomic situation, etc., which allows us to have a clear and precise vision of the macroeconomic scenario in which our ratings operate in the medium and long term,” said Antonio Madera, Chief Economist and Chief Rating Officer of Sovereign, Structured and Financial Institutions EthiFinance Ratings.

This is not the first time EthiFinance Ratings has won an award from FocusEconomics, as in 2021 it received three first places in the General, Interest Rate and Fiscal Balance categories, as well as a fourth place in Gross Domestic Product. Furthermore, in 2022, it was awarded two first places in the General and Fiscal Balance categories, and a third place in the Current Account category. Finally, in 2023, the company was recognized as the second best forecaster in the General and Current Account categories.

The award-winning institutions include the most reputable international forecasting companies, joined once again by EthiFinance Ratings for the fourth consecutive year. The award thus consolidates the agency’s position as an independent European rating agency and places it among the leading players in the sector.

To identify the best economic forecasters, FocusEconomics has evaluated the accuracy of the Real Sector forecasts submitted by more than 668 institutions to its Consensus Forecast survey over 22 months. Economists are evaluated on the average of their forecast errors for forecasts submitted to our monthly survey over the past 22 months. Errors are defined as the absolute difference between an individual forecast and the actual outcome of the macroeconomic indicator or commodity price.

In the words of Arne Pohlman, Chief Economist and Managing Director of FocusEconomics, in a note shared to EthiFinance Ratings to announce the award, “The FocusEconomics Analyst Forecast Awards celebrate the exceptional contributions of more than 1,500 economists from around the world who serve on our panel and produce and update reliable economic forecasts annually.”

Pharma Companies are now analysed using the General Corporate Rating Methodology.

As of the 15^th of July 2024, EthiFinance Ratings has decided to discontinue its Pharma Sector rating methodology.  Pharma Companies are now analysed using the General Corporate Rating Methodology. 

Our decision is based on the fact that Pharma companies can be adequately analysed, using our current General Corporate Rating Methodology, without the need for a sector-specific framework. 

Currently, EthiFinanceRatings rates one pharmaceutical company whose rating has not been affected by this change.

The General Corporate Methodology is only a merger of the three existing frameworks and our rating criteria remain unchanged.

As of the 15^th of July 2024, EthiFinance Ratings has decided to merge its Long-Term, Short-Term and Instruments Corporate Methodologies into a single General Corporate Methodology. 

Therefore, we are withdrawing the aforementioned three frameworks and replacing them with the General Corporate Methodology. 

Our decision pursues the simplification of our current Framework architecture and is based on the close interrelationships that exist between the three methodologies. 

In fact, the Corporate Long-Term methodology is the necessary starting point when initiating a short-term or an instrument rating. 

This rationalisation of our frameworks does not imply any changes in our rating criteria and therefore the ratings under these methodologies are not affected by this change.

EthiFinance Ratings has also seized the opportunity to slightly adjust the calculation of its distressed EBITDA in the case of instrument rating for sub-investment grade issuers.

This non-material change results in no change in the ratings as per the impact test that was carried out.

Following the launch of its new sovereign rating methodology that considers both financial and non-financial factors, EthiFinance Ratings has upgraded Spain’s credit rating from “A-” to “A” with a stable outlook, due to the size and diversification of the economy, which shows resilience to recent shocks, along with the favorable external sector position and the country’s solid social and governance profile, characterized by a high level of social welfare and human development.

The analysis forecasts that the Spanish economy will continue its growth path in 2024 and 2025, at 2.4% and 2%, respectively, as well as the progressive reduction of the deficit, which would remain at 3.6% in 2024 and fall to 2.9% in 2025, and public debt (105.5% and 104.8%). Additionally, inflation is expected to stabilize around 3% (3.1%) by the end of 2024 and fall to 2.3% in 2025.

Within the macroeconomic environment, the report highlights that  “the key drivers of Spanish growth have been both external and domestic demand, particularly from public and household consumption” and points out that the implementation of the Recovery, Transformation, and Resilience Plan (RTRP) could stimulate the growth of the Spanish economy in 2024 and 2025, which is also boosted by the strength of domestic demand and the resilience of the labor market.

Moreover, the agency highlights the strength of the Spanish banking sector, with a CET1 capitalization ratio of 12.7% and a NPL ratio around 3.5%, despite the decade of low-interest rates preceding the changes made by the European Central Bank in monetary policy to contain inflation. In fact, EthiFinance Ratings expects inflation to approach the 2% target set by the monetary authority by the end of 2025.

EthiFinance Ratings underscores the high unemployment rate, which is expected to remain above 11% until 2025 according to European Commission forecasts, and the high dependency ratio, which puts downward pressure on Spain’s credit quality. In this regard, the report notes that “aging population could lead to heightened fiscal challenges, driven by rising expenditure on pensions and healthcare, as well as reduced economic productivity” which could negatively impact the ability to meet its financial obligations.

On the other hand, the report highlights the progressive improvement of public finances, although it continues to be one of the main constraints on the rating. Indicators show a trend of deficit correction, which would close 2025 (2.9%) below the 3% limit set by the European Union in the new fiscal rules, while public debt would continue to decline. Additionally, “the sustainability ratio remains manageable, and is expected to hover around 6% of current revenues for the 2024-25 period, buoyed by robust revenues” according to the analysis.

Finally, the assessment of non-financial factors is notable, although the report highlights the persistence of constraining factors, such as political uncertainty and parliamentary fragmentation following the 2023 general elections. In environmental matters, the report highlights the high level of CO2 emissions (5.5 metric tons per capita in 2022), environmental risks offset by the high level of environmental protection.

The analysis emphasizes the strong performance of social policies, which receive the highest rating thanks to “the presence of an efficiently functioning welfare state and substantial economic development, contributing to elevated social well-being and human development”, with medium-term challenges that the country cannot overlook, such as the high poverty rate, the challenge of birth rates, and/or population aging.

EthiFinance, the innovative European rating, research and advisory group specializing in credit ratings and sustainable finance, updated today July 3rd, 2027, its website “ethifinance.com”.

This refreshed online presence reflects the company’s continued evolution and commitment to providing cutting-edge solutions in the field of sustainable finance and development and credit ratings.

The redesigned website offers a more user-friendly interface and showcases EthiFinance’s comprehensive range of services, including ESG ratings, credit research, credit ratings and advisory solutions.

Visitors can now easily navigate the site to explore the company’s history, values and diverse product offerings tailored for investors, companies and organizations seeking to address the challenges of financing and environmental and social change.

With a clean, modern design, the new site reaffirms EthiFinance’s strong position as a leading European player in sustainable finance, highlighting the expertise of its various subsidiaries and its commitment to promoting responsible decision-making in the financial sector.

For questions, please use the contact form.

We have published on our website a new version of our Long-Term Sovereign Rating Methodology introducing material changes to the analytical framework, entering into effect today, 31^st of May.

EthiFinance assigns sovereign ratings using a three-step process that blends qualitative and quantitative factors to ensure precise credit ratings:

• Model-Driven Anchor Rating: This initial rating is based on a PLS-VIP model using 38 key performance indicators across macroeconomic performance, public finances, and ESG factors.
• Qualitative Adjustments: These adjustments refine the anchor rating by considering additional risk factors, future trends, and qualitative aspects.
• Modifiers: Lastly, modifiers are applied for extraordinary events or unique features like reserve currency status.

As a novelty, we have included ESG considerations in our Criteria, both in the model-driven and qualitative adjustments parts, in addition to a specific ESG cap.

EthiFinance Ratings has maintained the rating of the Republic of Portugal at “BBB+” but has revised up its outlook to Positive from Stable.

The fiscal surplus that the country achieved in 2023 is expected to continue and contribute to the further reduction of the public debt/GDP ratio. Additionally, Portugal’s unemployment rate is decreasing and its GDP per capita is gradually converging with that of the European Union average.

The primary obstacle to an improvement in the rating of Portugal is the high level of debt. Although there has been some progress, there are still certain risk factors that could affect public finances, such as social challenges that arise from an aging population, governance issues, and the fragmentation of the political landscape after the 2024 elections. These circumstances could make it difficult to implement the necessary structural reforms. However, economic fundamentals and continued fiscal prudence could lead to a credit rating upgrade within the next 12 months, hence the adjustment to the outlook.

The Portuguese economy slowed in 2023, with growth for the year of 2.3%. This was due to factors such as high inflation, the tightening of financing conditions, and the weakness of the economies of its main trading partners. The Bank of Portugal, for its part, forecasts growth of 2.0% for 2024 and 2.3% in 2025.

Despite the challenges faced by Portugal, the country has made significant progress on several fronts. It has significantly reduced the unemployment rate (from 16.4% in 2013 to 6.5% in 2023), which is expected to remain stable at around the current level in the coming years. In addition, the financial sector has undergone a remarkable restructuring, resulting in a significant reduction in non-performing loans, from 17.2% in 2015 to 2.7% in 2023, and an increase in the profitability of banks. Furthermore, Portugal achieved a budget surplus in 2023, which is expected to continue in the future, although at lower levels due to various factors such as a moderation in the pace of revenue growth and the implementation of new spending measures. Public debt has fallen below 100% of GDP in 2023, and this trend is also expected to continue.

Our analysis regarding the ESG profile of the Republic of Portugal highlights the increase in renewable energy consumption (34.6% of total energy consumed in 2022) and highlights its upward trend. Similarly, on the social aspect levels of wealth and well-being have improved in recent years and the country is converging towards the European Union average level of GDP per capita, although it is still below (68% in 2023). However, again the country faces the problem of an aging population, with high dependency rates, which is likely to hamper further convergence.

Regarding the external sector, Portugal has managed to correct external imbalances in recent years. Specifically, the country has managed to generate surpluses in its current account, which has enabled it to reduce its debt position. As a result, Portugal’s external debt has fallen to 150% of GDP in 2023.

In summary, for EthiFinance Ratings the outlook for Portugal is positive. The country’s strong fiscal position, characterized by budget surpluses, has had a positive impact on its credit rating, with a significant reduction in public debt. While Portugal still faces challenges, such as high levels of debt and social and governance issues, EthiFinance Ratings sees the potential for a credit rating upgrade within the next 12 months.

Related content

• 240513_Press Release EthiFinance Ratings Rating Portugal.pdf
• Graphics Rating Republic Portugal May2024.png
• Main Financial Figures Rating Republic Portugal May2024.png

EthiFinance Ratings has amended its Credit Rating Disclosure Policy to allow public viewing of unsolicited credit ratings for Financial Institutions and Insurance Companies. With this decision, EthiFinance Ratings aims to increase transparency and accessibility of our credit ratings for the financial sectors, while preserving the “subscription distribution” model exclusively for corporate credit ratings. The change will take effect today, Wednesday 24^th of April.