With uncertainty over what will happen to Cyprus’ banks despite a pending 10 billion euros ($13 billion) bailout of the country’s economy approved by international lenders, the ratings agency Fitch has placed Cyprus’s Long-term foreign and local currency Issuer Default Ratings (IDRs) of B and Short-term IDR of B on Rating Watch Negative (RWN.) At the same time, the agency has revised the Country Ceiling to B.
In a statement on March 26, the agency said that, “The RWN reflects Fitch’s opinion that the shock resulting from the systemic failure of Cyprus’s banking system will have profound negative implications for the domestic economy, which heightens the risk to public finances.”
The B Country Ceiling effectively imposes a cap on the ratings of all issuers and transactions domiciled in Cyprus, and Fitch’s noted that, “The closure of all Cypriot banks last week, along with the likely continuation of deposit transfer restrictions this week represents a de facto imposition of capital controls in Cyprus.” The government said even after the banks reopen, now scheduled for March 28, it would limit withdrawals to prevent a run on the banks after it agreed to a plan to confiscate up to 40 percent of deposits of accounts over 100,000 euros, some $130,000.
Fitch’s added that, “If the program has incorporated a sufficient funding buffer against fiscal/economic slippage and is based on conservative assumptions, the IDRs could be affirmed at their current level of B given that the rating already reflects a heightened risk to solvency.”
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