S&P – Still cautious about Hungary, and optimistic about Poland

We do not change either Hungary’s or Poland’s credit rating: the first is still not, and the latter still remains in the category recommended for investments.  Contrary to the Polish, the Hungarian political and legal environment is not predictable enough; it is rather insecure. Furthermore, the Hungarian banking system has to face greater challenges than the Polish does. Hungary is lagging behind in regards of growth of GDP per capita too.
This is what Marcin Petrykowski, Regional Head of the Central and Eastern Europe at Standard and Poor’s. His message is quite controversial; firstly, according to the news, its competitor Moody’s is about to release a positive report of our country, secondly, he thinks that despite the outcome of the recent Polish elections, investors will still feel positively about the country.

Peter Zentai: Not only the government and the central bank, but numerous economic operators agree that it is unfair that despite our economic and financial achievements, Standard and Poor‘s does not improve Hungary’s credit rating. Why not?
Marcin Petrykowski
: I can see why you are heated about improving Hungary’s credit rating. As our last report shows, our analysts focusing on Hungary are welcoming the positive signs the country produces, such as the growing GDP, the low inflation, and the improving labour market.

Where do you think the problem is with Hungary? Many people reproach credit rating agencies for applying double standards…
What do you mean?

Countries performing similarly – or somewhat worse – get the better ‘marks’, yet it is withheld from Hungary…
Such statements are unacceptable. Our approach will be absolutely clearer if you thoroughly look through Standard and Poor’s public communications. The method according to which we make decisions is entirely transparent. To illustrate it, I would recommend having a look on the reasons why we ranked Poland as category A – approved for investments -, while Hungary as BB+, a category which is lower than Poland’s ranking. Going through the list of criteria could be useful, so you can see the factors why Poland got better rankings, and see the difference between the two economies.

There is no significant difference between capital markets – as far as I know, the nationalisation of pension funds was not too beneficial for neither capital markets. Furthermore, this is a major and possibly alarming factor for foreign investors…
This is a single factor out of many. The pension fund issue did raise concerns among Polish stock exchange operators – just like among Hungarians too –; however, this did not weaken the stability of the Polish market to make us change its ranking. Moreover, this nationalisation issue was compensated by steady economic growth rate, and the overall stability of the economy and budgetary situation.
Just to shed light to the analysing method: at S&P’s, factors – besides the development of the stock exchange – such as data of GDP per capita, the dynamics of its growth, the growth rate of GDP during a certain period, and the sustainability of the achieved growth rate are all highly important. From a broader point of view, other significant factors are the country’s overall budgetary and monetary policy and its current state, how independent and consistent the central bank’s actions are, and the long-term stability of a country’s banking system. Last but not least, the predictability and transparency of a country’s general economic, financial, and public policy are also fundamental factors when deciding a country’s ranking.
Taking everything into account, we do not change the ranking of Hungary and Poland: the first is still not while the latter is still in the category recommended for investments. Investors tend to believe that contrary to the Polish, the Hungarian political and legal environment is not predictable enough; it is rather insecure. Furthermore, the Hungarian banking system has to face greater challenges than the Polish does. Hungary is lagging behind in regards of growth of GDP per capita too

Are your decisions always free of external influences? Could it ever happen that you schemed with the other two major rating agencies?
Such a situation could never happen. Our analyses are absolutely independent and are based on entirely different methods, opinions, and factors. For instance, Fitch and Moody’s rate Slovenia’s performance than we, at Standard and Poor’s.

Poland. You know the conditions there very well, since you are Polish, and the Regional Head of the Central and Eastern Europe of S&P’s. What is your prognosis? Do you agree with those who believe that by the success of the Law and Justice party (PiS), a capital flight and a decline of the general economic-financial situation is about to happen – similar to what happened in Hungary, like the severe taxation of banks and foreign market chains?
Our analyses are always based on facts and occurred events. The legal and political environment surrounding the Polish economy is on firm grounds. To counter any radical political development the institutional checks and balances system has become uniquely strong in the area. The economic momentum of the last ten to fifteen years, the sustainable economic growth, and the trust of foreign investors are factors that the new government cannot risk losing regardless of its composition. Actually, we can compare the Polish economy to a liner. Changing its direction requires enormous amounts of energy and an extremely long time…

Original date of Hungarian publication: October 26, 2015