UPDATE 1-Fitch does not see French govt capitalising banks
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PARIS Jan 12 (Reuters) - Credit ratings agency Fitch does not expect France's government to have to provide capital to bolster its banking system, its head of sovereign ratings said on Thursday.
Fitch put France's AAA credit rating on negative outlook last month and said that it was the triple A country the most exposed to a deterioration of the euro zone's debt crisis.
French banks' holdings of debt from troubled states and reliance on wholesale funding left them exposed as the crisis worsened last year, making them increasingly dependent on liquidity from the European Central Bank (ECB).
While the banks' troubles had put some pressure on the French state, Fitch's managing director for sovereign ratings, David Riley, said that it would probably not have to recapitalise them although the risk was not totally non-existant.
"It's not our expectation that the French government will need to provide...capital support to French banks," Riley told a conference in Paris.
The ratings agency told Reuters on Tuesday that it did not expect to downgrade France this year given the country's current economic and fiscal fundamentals unless the euro zone crisis worsened significantly.
Riley said that euro zone could not count on help from countries like China to solve its problems and that ultimately containing the debt crisis would require greater use of the ECB's balance-sheet, especially to keep Italy being dragged deeper into the crisis.
"Italy needs a credible financial firewall, we need to close off this risk of a self-creating liquidity crisis. And that, in the end, will have to be at the European level," Riley said.
Fitch currently has Italy's A+ on a negative watch and Riley said that the ratings agency aimed to wrap up a review of the country by the end of the month. (Reporting by Leigh Thomas; writing by Daniel Flynn; Editing by Alexandria Sage and Toby Chopra)
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