French banks downgraded as debt crisis rumbles on

Moody's delivered ratings downgrades for Société Générale and Crédit Agricole yesterday, while keeping another French bank – BNP Paribas – on review for a cut as the eurozone debt crisis raged on.

The widely anticipated move by the credit rating agency came against the backdrop of growing fears for the European banking sector as policymakers struggle to find a solution for debt-laden Greece.

French banks have been among the hardest hit in recent weeks, suffering double-digit share price falls on concerns about their exposure to the Continent's most indebted countries. Markets have also been worried about their ability to tap funding sources, as investors focus on the risks. Overall, the country's banks are exposed to around €13.4bn in Greek public sector debt, nearly €42bn in non-bank private sector debt and around €1.6bn in bank debt, according to figures from the Bank for International Settlements.

But the Governor of the Bank of France defended the country's lenders, saying that the Moody's downgrades were "very small".

"French banks have an excellent rating, the same level as other major European banks, HSBC, Barclays, Deutsche Bank, Credit Suisse," Christian Noyer, who is responsible for regulating the French banking sector, insisted yesterday.

"There's no really bad news on the way, and Moody's says the level of capital of French banks allows them to absorb any potential losses on sovereign debt."

The ratings agency lowered its view of Crédit Agricole's creditworthiness by one-notch to account for the lender's "sizeable exposures to the Greek economy". SocGen's rating was also cut by one notch, with Moody's pinning the reassessment of the level of "systemic support of SocGen in the event of distress".

The agency said its new assumptions of support for SocGen were in line with those for BNP Paribas and Crédit Agricole, whose shares are down by about 45 per cent since the start of 2011.