Fitch downgrades Cyprus

Fitch Ratings said it downgraded the Republic of Cyprus' long-term foreign- and local-currency issuer default ratings to BB+ from BBB-, downgraded its short-term issuer default rating to B from F3 and affirmed the euro zone country ceiling for Cyprus at AAA. The outlook on the long-term issuer default ratings is negative.

The agency said the downgrade reflects a material increase in the amount of capital Fitch assumes the Cypriot banks will require compared to its previous estimate at the time of the last formal review of Cyprus' sovereign ratings in January. This is principally due to Greek corporate and households exposures of the largest three banks, Bank of Cyprus, Cyprus Popular Bank and Hellenic Bank, and to a lesser degree the expected deterioration in their domestic asset quality, Fitch said.

The negative outlook primarily reflects the risks associated with a further worsening of the euro zone crisis, notably further contagion from Greece, the agency said.

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