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French banks hit by rating cut

Tuesday 24 January 2012 – by Karina Whalley

Standard & Poor’s has downgraded four of France’s biggest banks following the loss of its AAA sovereign credit rating.

The agency has cut long-term credit ratings for BPCE, Credit Agricole and Societe Generale from A+ to A, giving them a stable outlook, while Caisse des Depots et Consignations had its long-term counterparty credit rating cut from AAA to AA+, with a negative outlook.

BNP Paribas and Credit Logement have kept their long-term credit ratings at AA- but with a negative outlook.

However, the economic and industry risk score will remain at two for S&P;’s Banking Industry Country Risk Assessment of French financial institutions, despite the country’s long-term sovereign rating having been slashed to AA+ on 13 January.

“The downgrade of France reflects our opinion of the impact of deepening political, financial and monetary problems within the eurozone,” said S&P.;

“However, these problems in our view neither directly affect our assessment under BICRA criteria of the three components of the economic risk score – economic resilience, economic imbalances and credit risk- nor the components of the industry risk score.”

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Although the agency forecasts a more difficult economic environment for France this year – 0.5 per cent GDP growth – as well as the eurozone, it will not affect the country’s economic resilience which is classed as “very low” risk, says S&P.;

France’s industry risk score includes system-wide funding, which the agency says will remain “low risk”. The European Central Bank is expected to maintain its “accommodating” policy toward banks, S&P; said.

The credit rating agency praised large French banks for their strategic measures in reducing the proportion of their assets funded by “short-term confidence-sensitive” resources, especially in their corporate and investment bank divisions.

S&P; also highlighted the banks’ policy of maintaining or enhancing their large buffers of assets eligible for central bank funding.

“Apart from Dexia Credit Local, we expect French banks to continue making limited use of ECB loans,” S&P; said.

BPCE, Credit Agricole and Societe Generale are considered to be “systemically important” banks which is factored into their downgrade.

BNP Paribas and Credit Logement’s rating incorporates “extraordinary government support”, said S&P.;

All the ratings which were placed on CreditWatch with negative implications in December have been removed, the agency said.

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