Greece exposure triggers potential downgrades for some of France’s major banking groups

Credit Agricole, BNP Paribas, Societe Generale, as well as Dexia Group, are at risk of having their standalone financial strength, long term debt and deposit ratings downgraded by agency Moody’s due to their exposure to Greek debt.

Two of the French banking institutions, Credit Agricole and BNP Paribas, face the threat of a downgrade by one notch, while Societe Generale and beleaguered European financial group Dexia may be downgraded by two.

The review of all the banking groups’ ratings has been triggered by the recent downgrade to Greece’s sovereign bond rating by Moody’s, with its rating falling from B1 to Caa1, putting it on a par with Cuba. Subsequently, rival ratings agency Standard & Poor’s cut Greece’s credit rating to CCC or B, dragging it down lower than Ecuador or Pakistan.

Exposure to ailing Greece puts Credit Agricole, BNP Paribas, Societe Generale and Dexia Group at risk in the event of the country’s potential and increasingly likely default.

Credit Agricole operates a subsidiary in Greece, Emporiki, that recently had its standalone credit assessment and senior long term deposit ratings downgraded by Moody’s to Caa1 and B1 respectively. The bank holds private sector credit exposure in the country through its €21.1bn loan book.

Greek default “could have a significant impact on the bank, owing to these direct exposures to the local economy, and the ratings agency’s belief that Credit Agricole will continue to provide funding and capital support to Emporiki,” said Moody’s.

But a default or restructuring of Greek government bonds is likely to have a limited impact on the institution, which only held €0.6bn of that debt as at the end of March.

BNP Paribas meanwhile does not have a subsidiary in Greece, making its relative exposure to the local economy more modest. It has substantial direct holdings of Greek debt however, said Moody’s. As at the end of December 2010, the French bank was exposed to €5.0bn of the debt, against its own Tier 1 capital of €56.6bn at the end of March this year.

BNP Paribas also has exposure to other weak Eurozone countries’ debt, such as Portugal of which it held €1.9bn of government debt as at the end of December last year.

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