Bermuda’s AA- credit rating has been affirmed by Standard & Poor’s Rating Services — but the negative outlook on the rating remains in place.

Finance Minister Bob Richards said he “expected” Standard & Poor’s affirmation of Bermuda’s long- and short-term issuer credit ratings, in a press release this afternoon.

He said: “I expected our rating to remain at AA-/A-1+ with a negative outlook based on where we are in our efforts to turn around our economy.

“I remain encouraged by the report which says that our ratings are supported by our ongoing achievements in attracting and retaining foreign financial services companies and the fact that S&P continues to expect the Bermudian economy to stabilise in the next few years, in line with the Government’s expectation.

“It is also pleasing to note that S&P has recognised that we are undertaking a variety of measures aimed at economic revitalisation.”

The press release continued: “Though Bermuda, like a number of other jurisdictions, has seen its ratings and outlooks adjusted, the Government is pleased that the underlying fundamentals and strengths of our economy have been recognised and that our rating remains in the top tier of the ratings matrix. At AA-, our sovereign bond rating is only four notches below the highest rating of AAA.”

In a statement released earlier today, S&P said the Island’s AA- rating — the fourth strongest rating possible on the agency’s scale — was maintained because Bermuda had managed to attract and retain the companies that make up its international business sector.

The presence of these companies “underpin high per capita income and the Island’s large net external asset position as well as the Government’s net fiscal asset position”, S&P said.

“As a result, we are affirming our ‘AA-/A-1+’ sovereign ratings on the Government of Bermuda.”

The negative outlook indicates that the Island could be downgraded over the next two years. The downgrade could happen “if the island’s economy fails to show signs of emerging from its contraction since 2009, if the new Government’s fiscal consolidation plans prove difficult to implement, or if ongoing bank loan deterioration leads to broader banking system pressure,” S&P said.

The Island’s credit rating is important, because a downgrade would force borrowing costs higher, as investors would demand a higher rate of interest to buy Bermuda Government bonds.

Bermuda has undergone five years of recession since the global financial crisis of 2008. S&P estimates that the Island’s gross domestic product (GDP) — the dollar value of all its good and services — will this year be 15 percent below its 2008 peak.

The ratings agency sees hope for the future. “We expect Bermuda’s economy to stabilise and begin to modestly grow in 2014-2015, particularly if its major trade and finance partner, the US, continues to increase its GDP by two to three percent, in real terms, as we expect,” S&P stated.

“In addition, the new One Bermuda Alliance governing party is undertaking a variety of measures aimed at economic revitalisation.”

The agency expects to see Government debt continue to rise in the short term. “Reflecting the weak economy, fiscal revenue has also declined in nominal terms, and Bermuda’s deficit has gradually risen. We expect general Government debt to rise by less than two percent of GDP over the next three years, after increasing by nearly 13 percent of GDP in 2013 (partly to prefund its financing needs in 2014-2015).

“We expect the Government to remain in a net asset position, with large Government-run defined-benefit pension fund assets exceeding gross government debt. Still, we estimate that net general government assets will be six percent of GDP this year, down from 25 percent of GDP in 2006.”

S&P regards the Island’s banking sector as a potential risk and recently put HSBC Bermuda on “CreditWatch with negative implications”, meaning it is considering downgrading the bank. However, the rating agency noted that the Island’s banks had “relatively low corporate and securitisation exposures, significant liquidity, and appear well-capitalised”.

S&P ranks Bermuda’s banking sector in group four on its Banking Industry Country Risk Assessment scale, which ranges from one to ten (one being the best).

“The banking system has suffered over the last five years from rising non-performing loans and 20 percent-30 percent declines in residential housing prices,” S&P added.