Moody's Downgrades Three Austrian Banks

A cyclist passes by a branch of Erste Bank, an affiliate of the Austrian owned bank by the same name, in Budapest, Hungary, 20 September 2011. EPA/BGNES

Ratings agency Moody's has cut the credit ratings of three banks in Austria, citing the risk of further shocks as the euro zone debt crisis continues to roil global markets and vulnerability to Eastern Europe.

The agency downgraded the three biggest banks: Erste Group Bank, UniCredit Bank Austria and Raiffeisen Bank International, which has a branch in Bulgaria too.

The agency cut the long-term rating for Erste Group Bank AG to A3 from A1 and assigned a negative outlook while UniCredit Bank Austria AG was cut to A3 from A2, also with a negative outlook. Raiffeisen Bank International AG was cut to A2 from A1 and assigned a stable outlook.

In addition to risks from the euro zone crisis, the ratings agency said Austrian banks were also vulnerable to conditions in central and Eastern Europe as well as the Commonwealth of Independent States.

Moody's cited their exposure to Eastern Europe and the Commonwealth of Independent States region as well as their limited capital buffers as factors behind its ratings action.

"While Austrian banks have improved capital and reserves, loss-absorption capacity in an adverse scenario remains below that of many European banking peers," it said in a statement.

Moody's did point out however that Austria has solid franchises and a relatively stable domestic environment.

The credit rating agency also downgraded several German banks.

UniCredit SpA, Erste Group Bank AG, Raiffeisen Bank International AG and Societe Generale SA are the four biggest lenders in the former communist part of Europe.

The Bulgarian banking system is concentrated, with most of the assets owned by large financial institutions from the eurozone.

The five biggest banks in Bulgaria are UniCredit Bulbank; DSK Bank, a unit of OTP Bank Nyrt., Hungary's largest bank; United Bulgarian Bank, owned by the National Bank of Greece SA; Raiffeisenbank Bulgaria and Eurobank EFG Bulgaria.

Greek banks control about 28% of banks' total assets in Bulgaria.

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