Moody's Downgrades Bank of Cyprus, Marfin

Moody's Investors Service said it has downgraded the deposit and debt ratings of Bank of Cyprus to Ba1/Not Prime from Baa2/Prime-2; and Marfin Popular Bank Public Co to Ba2/Not Prime, from Baa3/Prime-3.

The rating agency confirmed the deposit and debt ratings of Hellenic Bank Public Co Ltd at Ba1, and the outlook for all three ratings is negative.

The reason for the ratings cuts are high exposure to risky Greek government bonds, which amount to approximately 95 percent of Tier 1 capital for Marfin, and 55 percent for Bank of Cyprus.  Should Greece default on its debt, there would be economic losses and reductions in capital at these banks, said Moody's.

Hellenic bank is less exposed than the other two banks, it said.

The new ratings also reflect the reduced ability of the government to bail out the banking system in the case of a default by Greece. Yesterday, Moody's downgraded Cyprus' bond rating to Baa1 on fears that GDP growth will be reduced by the economic impact of the July 11th explosion at Evangelos Florakis naval base. The blast extensively damaged Vasilikos power station and resulted in widespread power cuts, impacting economic activity.