Fitch downgrades Cyprus banks to default categories

The ratings agency Fitch downgraded on Tuesday the two biggest Cypriot banks to default category and placed the third biggest on negative watch following the announcement of a financial rescue plan for the eurozone country. "Fitch Ratings has taken rating actions on the three largest Cypriot banks following the agreement the Eurogroup reached with the Cypriot authorities on Monday morning as a precondition to provide 10 billion euros ($12.8 billion) in financial assistance to Cyprus," a statement said. For the biggest, the Bank of Cyprus (BoC), Fitch cut its long- and short-term ratings by one notch from "B" to "Restricted Default" owing to "losses imposed on senior creditors" as part of a restructuring plan for the bank. For number two Laiki, also known as Cyprus Popular Bank, Fitch cut its ratings from "B" to "Default" because in addition to the planned losses, the bank is to be completely wound down, with healthy assets and insured deposits transferred to the BoC and the rest placed in a "bad bank" to be dissolved over time. Hellenic Bank, the third biggest in Cyprus, retained its "B" rating, but also remained on "rating watch negative" for a possible downgrade, Fitch said. On Monday, Cyprus and the Eurogroup of eurozone finance ministers unveiled a plan that is to include 10 billion euros in loans to Cyprus, part of which would come from the International Monetary Fund, and a restructuring of Laiki and BoC that would place a levy on uninsured accounts, those containing more than 100,000 euros.