Moody’s remains the only one of the major international agencies still refusing to give Greece’s coveted investment grade credit rating, has nevertheless upgraded the outlook for the economy to positive, paving the way for Greece’s progress over the past five years to be sealed.

Greece’s credit rating has already received an investment grade from the other four major agencies, S&P, Fitch, Scope and DBRS. In fact, the latter, in its rating on September 6, also upgraded the outlook for the Greek economy from stable to positive, as did Moody’s with its rating yesterday.

For the market, yesterday’s non-upgrade was not a surprise, since exactly one year ago, Moody’s had done a double upgrade of the Greek economy, from Ba3 to Ba1, one notch below investment grade, setting the outlook at stable, while last March it affirmed the rating. So they thought it was unlikely that a new upgrade in such a short time by the house that holds the title of “most stringent” wouldn’t be possible.

The reasons behind the outlook upgrade

The catalyst for the outlook upgrade was the banking sector, specifically, the increased likelihood of sustained health, reducing the risks to the government. Greek banks are now closer to the European average on many financial stability indicators, such as capitalisation ratios. Profitability is stronger for Greek banks and have the lowest cost-to-income ratio in the EU. Although the NPLs ratio is still above the EU average, the prospects for a further reduction close to the European average of 1.9% over the next one to two years are good.

In addition, the assessment that Greece’s fiscal strength could improve faster than expected, as economic growth and fiscal performance are likely to exceed the house’s expectations.

The affirmation of Greece’s Ba1 rating reflects the significant improvement the country has made in recent years in terms of implementing structural reforms and fiscal consolidation in the face of ongoing challenges in areas such as improving judicial efficiency, reducing macroeconomic imbalances and very high public debt.

At the same time, however, the agency says significant challenges remain from current account deficit, demographics and climate crisis, as Greece has high exposure to fires, heat waves and water shortages.

What will the credit rating change

Moody’s said Greece could be upgraded from Ba1 if continued improvements in the banking system’s financial strength indicators are observed, alongside evidence of faster elimination of Non Performing Loans to service providers than the agency’s current estimates.

Also, the continued outperformance of fiscal targets compared to the house’s expectations will play a catalytic role in reducing public debt more rapidly. Finally, signs of accelerating reform implementation would be a positive credit.

After Moody’s verdict, Standard & Poor’s will take the baton on October 18. The house had upgraded its BBB- rating outlook on Greece to positive last April.

It was followed on November 22 by Fitch Ratings, which had upgraded Greece to BBB- in December 2023 and maintains its rating outlook stable.

Scope will “close” the ratings cycle for 2024 on December 6. In July, the agency kept Greece’s rating unchanged at BBB- (investment grade) and upgraded the outlook to positive, while it had given the country an investment grade in early August 2023.