Cyprus minister says Fitch downgrade “inevitable”

 * Key is stabilising economy, lowering borrowing costs

Ratings agency Fitch is almost certain to downgrade Cyprus's sovereign credit rating, Finance Minister Charilaos Stavrakis said on Tuesday.
"I consider it inevitable that there will be a downgrade by Fitch," he told reporters.
Fitch now rates Cyprus AA-. It placed the island on credit watch “negative” in January, saying it needed to assess risks to the island's economy from lack of reform to its pensions system and its banks' exposure to debt-ridden Greece.
Moody's cut Cyprus's credit rating in January, and Standard and Poor's in November. Moody's now rates Cyprus A2, and Standard and Poor's rates Cyprus at A, both two notches lower than Fitch.
"Normally foreign credit ratings agencies follow one another," Stavrakis said. "Fitch has at the moment got Cyprus on a much higher rating than the other two, so it is inevitable that it is very likely there will be a downgrade by Fitch."
All three agencies have cited fiscal slippage as a concern. To varying degrees they have all expressed concern over the exposure of Cypriot banks to the Greek market, which accounts for more than 40% of their loan portfolios.
Once seen as a driver for Cypriot expansion, ratings agencies see a potential weakness in the Greek exposure, particularly if banks require any form of aid from a government wrestling with its own economic difficulties. Cyprus has been struggling to contain a growing budget deficit in the past two years, and says it expects to keep it within 4.0% of GDP for 2011.
Stavrakis said authorities were committed to improving the island's economic situation. "What is required is to stabilise the situation so there will be no further downgrades, to improve public finances, solve the structural problems of the economy and reduce borrowing costs," he said. "This will calm the (ratings) agencies and foreign investors."
Moody’s downgrading all three Cyprus banks last Wednesday, at the same time as praising the strong liquidity positions of the banks.
The news came just as Bank of Cyprus embarked on a roadshow in London in order to raise EUR 1.34 bln in contingent convertible bonds (CoCos).
The banks’ downgrade comes hot on the heels of the two-notch downgrade of the Republic of Cyprus to A2 from Aa3 on February 24, blamed largely on the government’s short-termism in its approach to cutting the public deficit.