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French-owned Greek banks get  ratings cut
French-owned Greek banks get ratings cut

Moody's has cut its debt rating on two Greek banks controlled by stronger French institutions, saying those links could be undermined and the banks weakened if Greece leaves the eurozone.

The ratings for Emporiki Bank of Greece and General Bank of Greece (Geniki) were cut two notches to Caa2 from B3 "reflecting risks emanating from the increasing probability of Greece exiting the euro area," Moody's said on Tuesday.

The two have held higher rankings than other Greek banks already at the Caa2 junk-bond level because they are backed by French banks: Credit Agricole is full owner of Emporiki, while Societe Generale has 99 per cent of Geniki.

Moody's said that until now the two French banks had ensured the Greek units had adequate backing to remain stable.

But if Greece drops out from the eurozone, Athens would likely impose capital controls and a bank deposit freeze that would make that support more difficult.

"The imposition of a deposit freeze on Greece's banking system would prevent the parent groups from supporting the obligations of their Greek subsidiaries towards depositors and other creditors," Moody's said.

Moody's stressed that a Greek withdrawal from the eurozone was still not the likely outcome of the current crisis, but said the risk of it was rising.

"Although there remains substantial incentives for the Greek authorities and euro area to avoid such an outcome, the risk of a euro exit could increase further following the June 17th Greek parliamentary elections," it said.