Cyprus’s credit rating was cut two levels to B by Fitch Ratings on concern the amount of government support needed for the nation’s banking sector is likely to be higher than previous estimates.
Total recapitalization costs of the banking sector may climb as high as 10 billion euros ($13.5 billion), Fitch said in a statement today. If fully realized, it would increase the size of the official support program for the Cypriot government to more than 17 billion euros, the ratings company said.
Cyprus, which requested a financial rescue in June, is still negotiating the size and terms with the European Union and the International Monetary Fund. The package is due to cover the government as well as banks weakened by their exposure to the neighboring Greek economy.
The downgrade from BB- by Fitch follows a three-level reduction to Caa3 by Moody’s Investors Service on Jan. 10. Fitch has a negative outlook on the rating of Cyprus.
Cyprus’s debt to gross-domestic-product ratio may rise to 150 percent this year, Moody’s said.