Wpływ wzrostu stóp procentowych na ryzyko kredytowe jednostek samorządu terytorialnego
Effect of higher interest rates on credit risk of local government units

Summary/Abstract: Debt of Local Goveremnts (LGs) in Poland steadily grew from PLN 28.2 bln in 2008 to PLN 72.1 bln in 2014. At the same time since 2012, the cost of servicing the debt of LGs, has declined due to lower market interest rates and stabilization of banking margins for LGs below 1.0% level. The high amount of debt makes the LG sector sensitive to the risk of interest rates increses. Monte Carlo simulations show that LGs will not be adversly affected by the increase in interest rates, if that occurs as an isolated factor, which does not entail significant changes in their revenues and non-interest expenses. In such a scenario, the increases of interest rates by 100bps may cause a growth of share of LGs with a negative risk profile from 1.8% in 2014 to 2.5%. Significant risks for the sector occur when the interest rate increases are accompanied by the deterioration of LGs’ non-interest operating surplus. Then, the increase of 100bps results in alarming levels of debt ratios for 10% of LGs and another 30% of LGs shifts to risk area of losing the ability to service their debt.

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