DBRS cuts Italy's credit rating, posing problems for its banks

Fri Jan 13, 2017 3:08pm EST
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By Gavin Jones

ROME (Reuters) - Canadian rating agency DBRS on Friday cut Italy's sovereign credit rating to BBB (high) from A (low), a move that could raise borrowing costs for struggling Italian banks.

DBRS, previously the only major agency with a rating in the A band for Italy, said its decision reflected uncertainty over the country's ability to pass reforms, continuing weakness in the banking system, and fragile growth.

It attached a stable trend to its new BBB (high) rating.

The downgrade will mean Italy's banks will have to pay more to borrow money from the European Central Bank when they use the country's sovereign bonds as collateral. It may also make Italian debt less attractive for foreign buyers.

Of the four agencies used by the ECB to determine collateral requirements, DBRS was the only one that gave Italy an A-band rating. This allowed its beleaguered lenders to continue to receive cheap funding.

Standard & Poor's rates Italy BBB-, Moody's rates it BBB+ and Fitch rates it Baa2.

An Italian Treasury source, who asked not to be named, played down the repercussions of DBRS's move, saying it may have some impact on the yields of short-term debt, but "will have no significant effect on our debt servicing costs."

Italy's public debt, at around 133 percent of national output, is the highest in the euro zone after Greece's.   Continued...