Greek Crisis spreads to Cyprus

 

Nicosia, July 28 (CNA) -- Moody's ratings agency has downgraded the deposit and debt ratings of Marfin Popular Bank Public Co Ltd (MPB) to Ba2/Not Prime, from Baa3/Prime-3, and Bank of Cyprus Public Co Ltd (BoC) to Ba1/Not Prime from Baa2/Prime-2.

 Moody's also confirmed the deposit and debt ratings of Hellenic Bank Public Co Ltd (Hellenic) at Ba1.

 The downgrade comes one day after the agency's decision to downgrade Cyprus' rating to Baa1 from A2.

 According to a Moody's press release, the main driving factor behind the downgrade is ''high exposures to Greek government bonds (GGBs), amounting to approximately 95% of Tier 1 capital for MPB and 55% for BoC.''

 ''These exposures will subject the banks to economic losses and reductions in capitalisation levels under the terms of the current Greek sovereign-debt exchange, albeit to different degrees,'' it adds, noting that ''with GGB holdings equivalent to 17% of Tier 1 capital, Hellenic is less exposed than its rated peers''.

It also cites ''significant lending exposure to the Greek private sector, which will also likely cause a further rise in the banks' non-performing assets and, as a result, weaken profitability.''

 ''Although the debt exchange would have a material impact on the tier 1 ratios of MPB, and BoC to a lesser extent, our primary concern is that their ability to deal with any further deterioration in operating conditions under a stress scenario is now weakened,'' the press release reads, noting ''Moody's recognises that the risk of further potential losses on Greek sovereign debt holdings beyond the current debt exchange cannot be ruled out.''

 According to Moody’s, “the rating actions also takes into account the recent reduced capacity of the Government of Cyprus to extend systemic support to the banking system, as reflected in the recent downgrade of Cyprus to Baa1, from A2.''