Credit agency downgrades Greek banks

THE Greek economy was hit by a new blow yesterday as one of the leading credit rating agencies downgraded eight of the country’s banks.

Moody’s cited the banks’ exposure to their government’s bonds and the deteriorating economic situation in the country as it struggles to convince creditors it is doing enough to get more bailout cash.

It follows more protests on the streets of Athens by public sector worker and pensioners angry about the austerity measures.

Moody’s Investors Service downgraded National Bank of Greece, EFG Eurobank Ergasias, Alpha Bank, Piraeus Bank, Agricultural Bank of Greece and Attica Bank by two notches from B3 to CAA2.

This limits the banks’ ability to borrow and risks further increasing interest rates in a country where people have taken massive wage cuts in recent months. The agency also warned that further downgrades were possible.

Shares on the Athens Stock Exchange plunged by more than other indexes in Europe, closing down 3.9 per cent at 797.95 points. Bank shares led the rout, with declines of more than 8 per cent.

Greece has been kept solvent by a €110 billion bailout in 2010 from other eurozone countries and the International Monetary Fund.

The European Central Bank has insisted Greece must stick with its bailout plan and has opposed default.

“I have long been convinced that a default is not necessary,” ECB president Klaas Knot said.

“But the news from Athens is sometimes not encouraging. All efforts are aimed at preventing this, but I am now less positive in ruling out a default than I was a few months ago.”

Greece needs an €8bn bailout instalment by mid-October to prevent it from defaulting on its massive debts as it moves into a fourth year of recession.