Fitch Ratings has downgraded Cyprus’s long-term foreign and local currency Issuer Default Ratings (IDRs) to ‘B’ from ‘BB-‘, the international ratings agency reported on Friday.
The outlook on the long-term IDRs is negative. Fitch also affirmed the Country Ceiling for Cyprus at ‘AAA’ and affirmed the short-term IDR at ‘B’.
“The downgrade of Cyprus’s sovereign ratings partially reflects the agency’s view that the size of the government support to the banking sector is likely to be higher than previous Fitch estimates, which mainly focused on the three largest banks,” the agency said in a press release.
Fitch is concerned about uncertainty regarding the capital needs of the cooperative banks.
“Including the latter, the total recapitalization costs of the banking sector could be up to 10 billion euros, although Fitch anticipates that this figure may include a degree of headroom,” Fitch said.
“If fully realized it would increase the size of the necessary official support program for the Cypriot sovereign to over 17 billion euros,” it said, adding that the government debt to GDP could jump to more than 140 percent in 2013.
Besides, Cyprus’s talks with international creditors on financial assistance that started in the summer of 2012 are still ongoing, the agency said.
Earlier in January, Moody’s downgraded Cyprus’s government bond rating to Caa3 from B3, with the outlook on the rating being negative.