NEW YORK Oct 8 Moody's Investors Service on
Monday slashed Cyprus's government bond ratings three notches to
B3 from Ba3, citing the country's weakened banks as a key
driver in the downgrade.
Deteriorating conditions in Greece and Cyprus are causing
"profound difficulties" in the banking sector, Moody's said in a
"In order to maintain appropriate domestic bank capital
levels, the Cypriot government will likely need to provide
financial support to the country's banks that could threaten the
sustainability of the government's debt burden," the statement
"The banking sector's difficulties will reduce domestic
credit growth and severely constrain the country's growth
potential, which will exacerbate existing economic and
institutional weaknesses," Moody's said.
Cyprus sought aid from the European Union and the
International Monetary Fund in June after its two largest banks
took overwhelming losses on their lending to Greece and turned
to the state for financial support.
The island, one of the smallest members in the 17-nation
euro zone, has been unable to borrow from international markets
for more than a year because of the high borrowing costs implied
by yields on its traded debt.
The rating carries a negative outlook.
Standard & Poor's rates the country BB; Fitch rates the