Fitch assigns country ceiling ratings to new EU states

Fitch Ratings, the international rating agency, has assigned country ceiling ratings to the 10 new members of the European Union. Malta has been given a rating of 'A'.

The new country ceiling ratings are two notches above each sovereign's own long-term foreign currency rating.

The country ceiling ratings will replace the sovereign long-term foreign currency rating, as the effective cap on all ratings within each country.

Fitch said this would allow the strongest private sector banks and companies to secure credit ratings, above those of the sovereign, that better reflect underlying credit fundamentals and enhance capital markets access.

Fitch will announce any change in ratings for entities within the 10 newly-acceding countries separately.

Ratings in order of sovereign long-term foreign currency and new country ceiling: Cyprus: 'A+', 'AA', Czech Republic: 'A-' (A minus), 'A+', Estonia: 'A-' (A minus), 'A+', Hungary: 'A-' (A minus), 'A+', Latvia: 'BBB+', 'A', Lithuania: 'BBB+', 'A', Malta: 'A', 'AA-' (AA minus), Poland: 'BBB+', 'A', Slovakia: 'BBB+', 'A', Slovenia: 'A+', 'AA'.

As members of the EU, there are institutional and political constraints that, in Fitch's judgment, materially reduce transfer and convertibility (T&C) risk for the private sector, even in the event of a sovereign debt crisis.

Once the new EU members join the euro, the euro area ceiling rating of 'AAA' will apply.

However, while Fitch believes that T&C risk is reduced by EU membership, it is not eliminated and remains highly correlated with the risk of a sovereign debt crisis.

Consequently, the country ceiling rating is linked to the sovereign long-term foreign currency rating, and will very likely move with it.