``The downgrade reflects Fitch's concern that the risk of a financial crisis in Ukraine involving a large depreciation of the currency, further stress in the banking system and significant damage to Ukraine's real economy is significant and rising,'' according to Andrew Colquhoun, the director of Fitch's Sovereigns Group.
The global financial crisis is hitting more vulnerable emerging markets as investors shun riskier assets in countries with big current-account deficits in a flight to safety. Ukraine has the worst creditworthiness of Europe's emerging markets, based on the cost of credit-default swaps, which protect bondholders against default.
Contracts on Ukraine's debt are traded at 2000 basis points, compared with 458 for Hungary, according to CMA Datavision in London.
``Fitch is unconvinced that the raft of emergency support measures announced by the central bank will be adequate to shore up depositor confidence and forestall further banking-system stress,'' said Colquhoun. ``New central bank rules restricting loan growth threaten to exacerbate a slowdown in the economy, which could hit banks' asset quality relatively soon.''