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Fitch revises San Marino's outlook, affirms ratings

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Fitch revises San Marino's outlook, affirms ratings

Fitch Ratings revised San Marino's outlook to negative from stable, while affirming its long-term foreign-currency issuer ratings at BBB-, citing banking sector weakness and higher contingent liability risks along with the country's reduced debt tolerance.

The rating agency said the country's banking sector faces challenges presented by a low-interest-rate environment, poor asset quality and weakening liquidity. It added that the sector may require a larger public injection over the next four years than what Fitch expected in its prior review, which could add to public debt.

"Most of the recapitalization need stems from legacy [nonperforming loans] at San Marino's largest bank, Cassa di Risparmio della Repubblica di San Marino (CRSM)," Fitch said.

In affirming the country's ratings at BBB-, Fitch cited the country's relatively high per capita GDP, its large trade surplus and stable political situation, but noted gaps in economic, fiscal and external data. The rating agency also said the country's resilience to shocks could be limited because of its small population.

Fitch projects GDP growth to decelerate to approximately 1.6% in 2017, down from the 2.2% recorded in 2016 and consistent with tepid core inflation and slower job growth.

Fitch said that if San Marino's banking sector strengthens, its outlook could be revised to stable from negative. An improvement in public debt dynamics with better economic growth could also lead to a favorable outlook, it said.