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Two notch downgrade from Fitch

Credit ratings agency Fitch has cut the island’s credit rating by two notches with the possibility of a further downgrade citing a fiscal budget that has significantly underperformed expectations.

FITCH Ratings has downgraded the Cyprus Long-term foreign and local currency Issuer Default Rating (IDRs) two notches to ‘BB-‘ from ‘BB+’ pushing it further into junk territory.

In its statement Fitch said that its downgrade reflected the materially weaker macroeconomic outlook, a fiscal budget that has significantly underperformed expectations, and the continued high level of uncertainty over the costs associated with bank recapitalisation.

Fitch said that the three main Cypriot banks will need at least around a further €4 billion (22 per cent of GDP) in addition to the €1.8 billion already injected into Cyprus Popular Bank in 2012.

In addition, Fitch said that the government’s short-term financing flexibility had been materially reduced with its current dependence on bank financing to meet its funding needs.

The credit outlook remains negative.

Earlier this month the European Commission said that it expected the Cypriot economy to contract significantly in 2012 and that it will remain in recession for at least another two years as talks for a bailout from international creditors have dented sentiment and the country continues to feel the effects of the debt crisis in neighbouring Greece.

Readers' comments

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  • Martyn says:

    Just how low can u go?

    At least, we hear, today’s the day Cyprus might hear about its BailOut application – together, presumably, with some very stringent conditions attached.

    Two more years, minimum,, recession ahead forecast – and austerity measures
    s-t-r-e-t-c-h-i-n-g way into the future, no doubt.

    And still Mr President was there in Brussels last night smiling and chatting his way thru the Big EU Budgeting meeting!!

  • M Anastasiou says:

    The Government signed ‘off’ 4 Billion in the Greek Haircut which crucified the Banks and thus the bailout !

  • @andyp – there are plenty of notches left – see the chart below.

    Anything lower than a BBB- rating is considered as speculative or junk.

    Credit Rating Chart

  • andyp says:

    I understand that the Bailout required is now 17bn, not counting the outstanding 5bn borrowed from Russia.

    Are there any notches left?

  • Clive says:

    How about the government selling some public utilities such as electricity, Cytanet, shares in the offshore gas and oil. Then of course the lawyers, developers and banks and many citizens paying their back-taxes.

  • The views expressed in readers' comments are not necessarily shared by the Cyprus Property News.

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