Moody's Investors Service on Tuesday downgraded six German banks, citing increased risk of further shocks emanating from the eurozone debt crisis and the limited capacity of the banks to absorb losses.
In addition, the ratings agency downgraded Austria's three largest banks, citing their vulnerability to the adverse operating conditions in some of their core markets in Europe.
Moody's downgraded the long-term debt as well as deposit ratings for six German lenders and one German subsidiary of a foreign bank by one notch. Meanwhile, Moody's affirmed the ratings for one bank.
Commerzbank AG (CRZBY.PK), Germany's second-largest lender, and Unicredit Bank AG were downgraded by one notch each to A3, with the outlook for both banks being negative.
DekaBank Deutsche Girozentrale and DZ Bank Deutsche Zentral-Genossenschaftsbank AG's ratings were also lowered by one notch each to A1, with stable outlooks.
Landesbank Baden-Wuerttemberg and Norddeutsche Landesbank Girozentrale GZ ratings were lowered to A3, with stable outlooks. According to Moody's, the rating actions will have no impact on debt issued by Landesbanks that is guaranteed by state governments.
Further, Moody's affirmed WGZ Bank AG's ratings at A1, with a negative outlook.
Moody's also lowered the short-term ratings for three banks and the German subsidiary of a foreign bank by one notch, triggered by the long-term rating downgrades. The ratings agency said that further to these actions, it has assigned stable outlooks to the ratings of most German banks.
Moody's said the ongoing rating review for Deutsche Bank AG (DB) and its subsidiaries will be concluded together with the reviews for other global companies with large capital markets operations.
According to Moody's, German lenders are exposed to asset classes that are likely to be impacted by a worsening operating environment in Europe.
The asset-side vulnerabilities for the banks include exposure to the global shipping sector, international commercial real estate markets, legacy holdings of structured credit products and, securities as well as other exposures to stressed euro area countries.
However, Moody's noted that the ratings of many German banks have decline by less compared to other European banks due to several factors. This includes the comparatively benign operating environment in the German home market, below-average unemployment, low household and corporate debt levels, and the general resilience of the German economy.
Separately, Moody's also said it lowered its investment-grade ratings on Austria's three largest banks.
The agency cited the vulnerability of the lender to adverse operating conditions in some of their core markets in Central and Eastern Europe as well as the Commonwealth of Independent States, in addition to the increased risk of further shocks from the Eurozone debt crisis.
Moody's cut the long-term rating for Erste Group Bank AG (EBKDY.PK) by two notches to A3 and assigned a negative outlook, while UniCredit Bank Austria AG was cut by one notch to A3 and assigned a negative outlook. Raiffeisen Bank International AG (RAIFY.PK,RAIFF.PK) was downgraded by one notch to A2, with a stable outlook.
"While Austrian banks have improved capital and reserves, loss-absorption capacity in an adverse scenario remains below that of many European banking peers," Moody's said.
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