Moody’s Downgrades Cyprus by Two Notches to Baa3

Rating agency Moody`s has downgraded Cyprus government bond ratings to Baa3 from Baa1, placing the ratings on review for further possible downgrade.
The rating agency has also downgraded Cyprus`s short-term rating to Prime-3 from Prime-2 and placed it on review for further possible downgrade.

According to Moody`s, the key drivers are the high likelihood that the Cypriot banking system will require state support in 2012 as a result of the large expected write-downs on its exposures to Greek government bonds, adding that “this state support will have a significant negative impact on the government`s debt metrics.“
It also adds that the full extent of required state support for the Cypriot banking system could increase further, given the substantial downside economic and financial risks in Greece.
(source: cna)