Moody’s Investors Service has downgraded the credit ratings for Slovenia, saying the country’s government faces risks from the eurozone debt crisis and the potential that it may need to step in and provide financial support to banks.
The ratings firm on Thursday lowered the Balkan nation’s local and foreign currency government bond ratings by one notch to “A1” from “Aa3.”
It has a negative outlook on the ratings.
The move comes amid growing uncertainty over the prospects for eurozone countries to contain the region’s debt crisis.
Moody’s said the eurozone debt and funding crisis has exposed significant vulnerabilities in the largest financial institutions in Slovenia.
The firm noted that, since the outset of the crisis, Slovenian banks have needed the government to provide debt guarantees and capital.
Slovenia will have to provide much more support to its banks in the future, because the lenders’ assets, profitability and funding needs are expected to continue, Moody’s said.
Under one scenario studied by the firm, Slovenia would potentially need to provide between 2 percent and 8 percent of GDP in coming years to support its largest banks.
Moody’s also sees greater risks that the Slovenian economy will not grow in the medium-term as companies, people and sectors of the government roll back spending.
Another concern is the volatile funding conditions of eurozone bond markets, which represents a risk to Slovenia, should the its financing needs exceed original estimates.