Standard & Poor's cut its sovereign credit ratings on Nigeria deeper into junk territory, after the government bailed out five large banks and saw a fall-off in oil revenue.

Nigeria's foreign currency rating was cut by one notch to B+, while the local currency rating got a two-level cut, also to B+.

The ratings firm, which maintained its stable outlook, said Nigeria has become less fiscally flexible after its central bank planned a $2.6 billion capital injection into five domestic banks, which, combined, make up 40% of the country's loans.

"In our opinion, the central bank's action has begun a welcome restructuring of Nigeria's banking system, but it also reveals deep problems in Nigeria's credit markets," S&P said.

Nigeria's banks were left overexposed to commodities when oil price spikes set off a flurry of borrowing and investing, and banks lent heavily to a booming stock market. The ensuing fall in commodity prices and global economic downturn left its markets reeling. Its stock market has fallen around 60% from its highs early last year.

S&P said that the government would increase its borrowing requirement as a result of the bank takeover, and forecast a 2009 deficit of 4.5% of GDP.

"On the other hand, our central forecast is that the current problems in Nigeria's financial markets will not lead to a balance-of-payment crisis," the credit rater added.

http://online.wsj.com/article/BT-CO-20090821-708339.html

a GDP deficit?

ouch