S&P's Lowers Sovereign Credit Rating to BB+ On Eurozone Debt Concerns
Standard & Poor's rating agency has lowered its long-term and short-term sovereign credit ratings on Cyprus by two notches to 'BB+/B' from 'BBB/A-3' with a negative outlook.
The rating cut is on concerns that EU policymakers are not fully addressing the eurozone's financial problems and the EU summit on December 9th 2011 does not supply additional resources or operational flexibility to bolster European rescue operations, said S&P's.
It also reflects systemic stresses on the large Cypriot financial sector and Cyprus' external asset position, which "in our view remains susceptible to a write-down on its high lending exposure to Greece," said S&P's.
"Besides increasing funding costs, we expect losses on Cypriot banks' loan books to Greek customers--along with the banks' holdings of Greek government and bank paper--will further
worsen its net external liability position and increase narrow net external debt to levels above 100% of current account receipts," said the rating agency.
The ratings on Cyprus are constrained a politically obstructive environment, a relatively concentrated economy, and very high contingent liabilities emanating mostly from its large financial sector, said S&P's.
There is a 1-in-three chance that S&P's will lower the island's long-term rating again in the next 12 months if there are higher-than-expected costs from a Greek debt restructre, said S&P's.
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