S&P downgrade mounts pressure on Cypriot govt. to expedite bailout talks
2012-10-18 10:31:50
Citing Cyprus's failure to clinch a timely deal with the troika after officially requesting European financial support in June, Standard and Poor's on Thursday downgraded the nation's credit rating deeper into junk status.
Cyprus' long-term sovereign credit rating was cut by three-notches to 'B' from 'BB', with a 'negative' outlook. S&P put much of the blame for not having a deal on "domestic political constraints."
"Cyprus' creditworthiness has deteriorated significantly since our last downgrade on August 2, 2012, as domestic political constraints have prevented a timely agreement with the EU, IMF, and ECB on a financial support package," the rating agency said in a statement on Thursday.
Additionally, the agency sees rising refinancing risk from government's increased dependency on treasury bill issuance.
On the top of it, deterioration in the banking sector's domestic loan book has increased uncertainties about the final cost of Cyprus' banking crisis, and the implications of this for the government debt burden, S&P said.
The agency also warned of further rating downgrade if the country's external and fiscal financing pressures escalate. "We see only limited progress by the government in agreeing to a critical loan program with the Troika," S&P said.
Cyprus's finance minister Vassos Shiarly said Wednesday that the final bailout negotiations with the troika will likely start by next week.
Cyprus requested aid from the EU and the IMF in June in the face of a severe banking crisis, partly triggered by Cypriot banks' involvement in Greek debt restructuring in early 2012.
S&P expects Cyprus's support package to total upwards of EUR 15 billion through 2014. According to the agency, the burden of recapitalizing the banks will likely fall on the government's balance sheet, increasing the risk of a government debt rescheduling.
Earlier this month, Moody's Investors Service lowered Cyprus's bond ratings three notches to B3, citing the "profound difficulties" in the banking sector. In June, Fitch downgraded Cyprus's ratings to BB+.