Moody’s Investors Service cut Friday the debt ratings of nine Portuguese banks, by one or two notches, from Baa1 to Ba2, on concerns of funding, bad loans and holdings of government debt. The targeted banks are now under negative outlook “junk” status.

The affected banks are: Caixa Geral de Depósitos (CGD), Banco Comercial Português (BCP/Millennium), Banco Espirito Santo (BES), Espirito Santo Financial Group (ESFG), Banco Português de Investimento (BPI), Banco Santander Totta (BST), Caixa Económica Montepio Geral (Montepio), Banco Internacional do Funchal (Banif) and Banco Português de Negócios (BPN).

Today’s rating actions conclude the review for downgrade initiated on July 15, 2011, following Moody’s downgrade of Portugal to Ba2, outlook negative, from Baa1.

Moody’s expects a further deterioration of the banks’ domestic asset quality due to a weak economic growth outlook and government austerity measures, and liquidity strains due to a lack access to wholesale funding.

The Bank of Portugal had announced Thursday that the Portuguese economy should contract by about 1.9% in 2011 and 2.2% next year. The Bank of Portugal figures are very similar to government forecasts.

In late September, Prime Minister Pedro Passos Coelho said the economy would shrink less than expected this year (1.8% instead of 2.3%) but more next year (2.3% instead of 1.8%).

The central bank also foresaw a fall in exports in the coming year due to the international economic situation and higher unemployment.

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