S&P AFFIRMS RATINGS ON BULGARIA AT BBB/A-2

Standard & Poor's ratings agency has affirmed its long- and short-term foreign and local currency sovereign credit ratings on Bulgaria at 'BBB/A-2'.

The outlook is stable.

"The Bulgarian government's policies will continue to support the sovereign's macrofinancial stability, including consolidation of its finances, despite the subdued economic growth environment," the agency said in an official statement.

The analysts expect the general government deficit to reach 1.3% in 2012 and stay broadly the same in 2013, though there is a risk of fiscal slippage with parliamentary elections scheduled for mid-2013.

However, there is a potential for higher-than-budgeted privatization revenues that could be used to restore the fiscal buffer or provide cofinancing projects.

The general government debt is low at an estimated 17% of GDP in 2012 and net general government debt is estimated at 10% of GDP. The fiscal reserve covers at least one year of amortization and interest payments. General government interest expenditure is also low at slightly less than 2% of general government revenues in 2012 and is expected to broadly remain at this level over 2013-2015.

The analysts point out that the banking system is well-capitalized and the regulatory and prudential frameworks have been strengthened so as to mitigate the risk of a funding or capital withdrawal by parent banks.

In terms of asset quality, the ratio of gross nonperforming loans (NPLs) to total loans is still high at 16.9% at end-June 2012 and the asset quality deterioration is expected to peak and reverse by end-2013.