Moody’s yesterday (Thursday) cut Kommunalkredit Austria by two notches, from Baa1 to Baa3, because expectations have risen that the bank’s exposures to the Greek sovereign will require higher than previously anticipated writedowns.

However, the rating agency said that the revised rating continues to reflect Moody’s assessment of a very high probability of systemic support, with the Baa3 level including seven notches of support uplift from a Caa1 standalone credit strength rating.

Moody’s said that the very high support has been demonstrated by the rescue and takeover of the bank by the Austrian government, which owns almost 100% of the bank’s capital.

The rating agency said that it expects Kommunalkredit will need to write down “the lion’s share” of its exposure to Greece in its 2011 results.

“Following a Eu31m write-down in H1 2011, the remaining exposure on Kommunalkredit’s books was Eu204m as reported by the bank as of June 2011, which represented roughly 50% of its Eu411m tier one capital,” it said.

The latest developments in the negotiations of a private sector participation in the restructuring of Greek debt means that a writedown to 30% of the notional value of the bonds cannot be ruled out, according to Moody’s.

It said that it expects the bank to post a three-digit million loss for the year 2011, which would considerably reduce its regulatory capitalisation and diminish its earlier loss-absorption capacity.