Fitch Ratings has downgraded several Greek banks, in the wake of a downgrade for Greece’s sovereign rating, amid the country’s recent failed elections.
The rating agency cut the ratings on five Greek banks to “CCC” on Friday, echoing its downgraded rating for the country, and reflecting heightened risk that Greece may not be able to sustain its membership in Europe’s Economic and Monetary Union (EMU).
“In the event that the new general elections scheduled for June 17 fail to produce a government with a mandate to continue with the EU-IMF programme of fiscal austerity and structural reform, an exit of Greece from EMU would be probable and/or this could be followed by a withdrawal of international support to Greek banks,” Fitch said.
Additionally, Fitch says that a Greek exit from the EMU would likely result in widespread default on private sector, and sovereign, euro-denominated obligations.
Fitch points out that, following large losses in 2011, the banks are slated to receive capital injections as part of the IMF/EU support programs. However, it notes that support has not yet been transferred to the banks, and further capital injections will be needed to reach the minimum 9% core capital ratio required by the Bank of Greece by September.
In the meantime, the Bank of Greece and the European Central Bank have continued to provide emergency liquidity assistance, which has absorbed deposit outflows from the banking system to date, it adds.
If they receive all the necessary capital, and if the situation in the country stabilizes and liquidity is restored, Fitch will upgrade the banks’ viability ratings, it says. Although, at best, it expects them to remain at a deeply sub-investment grade rating level “to reflect the numerous challenges they are faced with and their substantial weak credit fundamentals.”