Moody’s Investors Service has downgraded Cyprus’ government bond ratings to B3 from Ba3, and has assigned a negative outlook to the ratings.
In its decision, Moody’s notes the key driver of its rating action "are the profound difficulties in the Cypriot banking sector, which are the result of deteriorating conditions in Greece and Cyprus”.
It said that in order to maintain appropriate domestic bank capital levels, the Cypriot government will likely need to provide financial support to the country’s banks that could threaten the sustainability of the government’s debt burden.
Moody’s also said the banking sector’s difficulties will reduce domestic credit growth and severely constrain the country’s growth potential, which will exacerbate existing economic and institutional weaknesses.
Get all the latest news and videos in your inbox. Register FREE