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Fitch downgrades Belgian banks

Tuesday 31 January 2012 – by Karina Whalley

Fitch has slashed the long-term issuer default ratings on Belgium’s two largest banks, Dexia and KBC, following the agency’s recent downgrade of Belgium’s sovereign rating.

Dexia Bank Belgium, KBC Bank and KBC Group long-term IDRs were cut down from A to A-, with a stable outlook on Tuesday, the credit rating agency announced.

“[This] reflects the agency’s view that there would be an extremely high probability of potential additional support from the Belgian state, if required,” Fitch said.

“The downgrade of Belgium’s long-term IDR means its ability to support these institutions has decreased,” it said.

Fitch says potential additional aid from the Belgian state is more certain in the short-term. In October, Dexia’s Belgian banking arm was bailed out by the government and other troubled assets were given state funding guarantees.

The three institutions have been removed from Fitch’s “rating watch negative”, which means they are no longer being monitored for a potential downgrade.

KBC Insurance and KBC Group Re’s Insurer Financial Strength ratings have also been taken down a notch from A to A-, although both have a stable outlook.
Fitch has come down hard on eurozone member states, slashing five sovereign debt ratings including Italy, Spain, Cyprus, Slovenia as well as Belgium, over concerns of divergence in monetary and credit conditions. Belgium was cut from AA+ to AA.

Fitch said Dexia Credit Local’s unaffected ratings reflect potential additional support if required from France which still retains its coveted AAA status. But Dexia Credit Local’s debt guaranteed by France, Belgium and Luxembourg takes the rating of the weakest link, which is currently Belgium and has therefore been downgraded from AA+ to AA.

Standard & Poors has maintained the A- long-term rating on Dexia but is monitoring the bank for a future downgrade. Both S&P; and Moody’s said the agreement to provide state guarantees of up to €90bn ($117.7bn) to Dexia was one of the main reasons to lower Belgium’s credit rating in recent months.

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