Moody’s ratings agency has downgraded eight Greek banks by two notches due to their exposure to Greek government bonds and the deteriorating economic situation in the country, whose government has struggled to meet the terms of an international bailout.

Moody’s Investors Service downgraded National Bank of Greece, EFG Eurobank Ergasias, Alpha Bank, Piraeus Bank, Agricultural Bank of Greece and Attica Bank to CAA2 from B3. It also downgraded Emporiki Bank of Greece, which is majority owned by French bank Credit Agricole and General Bank of Greece, majority owned by another French bank, Societe Generale, to B3 from B1.

Moody’s cited the expected impact of the deteriorating domestic economic environment on non performing loans and declines in deposit bases and still fragile liquidity positions in its reasoning for the downgrade.

Greece has been kept solvent by a EUR 110 billion bailout in 2010 from other eurozone countries and the International Monetary Fund. But it has needed another massive bailout this summer, and has angered international creditors by lagging behind in its commitments to implementing reforms and carrying out pledges.

A Greek default could send shockwaves through the eurozone banking system and the global economy. European officials have tried to prevent one because it could mean losses for banks that hold Greek government bonds and prompt speculation that other governments with shaky governments could face increasingly acute funding pressures.

Mr Klaas Knot Dutch central bank president said that he could no longer rule out the possibility that the country will be unable to pay back its debts.

Moody’s said that despite its downgrade, it recognized the continued potential for the Troika to extend systemic support to the Greek banks in case of need, as well as the potential of a Greek financial stability fund to do the same.

(Sourced from Associated Press)