Moody’s downgrades Portuguese banks prior to debt sale
Portugal is looking to sell as much as €1 billion in short-term Government debt today – in a bid to help service its debts.
The Government is expected to be able to issue 6 and 12-month treasury bills but the debt auction comes after Moody’s downgraded the credit ratings of seven Portuguese banks citing weakened financial strength.
The agency downgraded the long-term credit ratings of BES and Banco BP by three notches from A2 to Baa2 on Wednesday.
It also reduced Banco Comerical Português by three notches to Baa3 and lowered the ratings of four other lenders and subsidiary companies.
According to Moody’s, Portugal’s sovereign debt problems increased the possibility that the Government may limit future financial support for its banks.
The downgrades of Portugal’s banks comes just a day after Moody’s downgraded Portugal’s debt rating, for the second time in less than a month, by one notch to Baa1 from A3.
Moody’s also warned that a further downgrade is possible as a bailout becomes increasingly likely for the debt-laden country.
Borrowing costs have risen to more than 10% – for the first time since the introduction of the euro.
A surge in borrowing costs forced Greece and Ireland to seek emergency aid and there is speculation that Portugal will soon be forced to turn to the EU for a bailout.