Last week S&P downgraded various French banks including; BNP Paribas by one notch with a negative outlook. Ratings on Credit Agricole and Societe Generale (amongst others) were affirmed; however their outlook was revised to negative.
S&P gave the following rational:
The economic risks under which French banks operate have increased in our view, leaving them moderately more exposed to the potential of a more protracted recession in the Eurozone.
We also consider that the economic environment for banking will become more demanding as the French housing market is in the process of correcting a build-up in housing prices, although we expect the impact on banks and the overall economy should be relatively limited.
We think industry risks for France's banking sector could rise in the near term as competition in the domestic market could intensify and funding conditions could remain volatile. We are therefore revising our economic risk score for France by one notch.
Overall, we continue to view the French economy as relatively stable, but we consider that its resilience to adverse external developments has been reduced. The constraints of a relatively high public debt burden, reduced external competitiveness, and persistent high unemployment are being aggravated in our view by the ongoing Eurozone crisis, a more protracted recession across Europe, and lower domestic growth prospects. We consider that this economic environment, including the persistence of low interest rates, will put pressure on domestic revenue growth for French banks in 2013-2014.