Cyprus Fitch downgrades to ‘BB +’, Outlook Negative [randomthingsthatcometomyhead]
This downward revision is the result of Fitch’s the inevitable overexposure of banks Cypriots to the Greek economy. This exposure increases the risk has led Fitch to downgrade to Cyprus from BBB-to BB +.
This risk of large banks Cypriots is the need for extra funding needed to maintain the liquidity of the financial system. This is the case of the People’s Bank of Cyprus, this entity would need € 1,800 m, equivalent to 10% of GDP.
But this borrowing may not be reduced solely to the People’s Bank of Cyprus and reach the other two major entities of the country, Bank of Cyprus and Hellenic Bank that Fitch may need about € 4,000 m, equivalent to 23% of GDP in Cyprus.
These liquidity needs seem complicated to be solved in the private market, so the Cypriot state would have to inject this money with consequent implications for public accounts. These consequences would be those already known in other euro area countries and would require cuts in order to control the public deficit that currently is provided that will reach 3.9%, higher than expected spending of 3%.
All these elements above make a negative outlook Fitch set that can be modified as a function of the internal challenges facing the banking financing or control of public expenditure and external elements such as the development of the Greek crisis.
Fitch Ratings downgraded the Republic of Cyprus long term default rating in foreign and local currency issuer (IDR) to ‘BB +’ from ‘BBB-‘. The short-term IDR is also downgraded to ‘B’ from ‘F3′. The prospect of long-term IDR is Negative. Fitch said while the roof of eurozone country to Cyprus at ‘AAA’.