NEW YORK, Nov 11 (Reuters) - Fitch on Tuesday cut Latvia's credit ratings to the lowest investment-grade level, saying the country is likely to face a "severe financial and economic crisis" that may lead to further rating downgrades.
A "substantial and timely" package of international financial support is needed to prevent such a crisis, Fitch's associate director, Eral Yilmaz, said in a statement.
Latvia during the weekend took over its second-largest bank, Parex, after it lost 12 percent of its deposit base amid a slew of withdrawals from both residents and non-residents.
The government is seeking a strategic partner for the bank that will help it refinance $775 million in syndicated loans due next year.
"However, Fitch believes the current global economic climate will make a rapid sale of the bank difficult and that it will be unable to refinance the syndicated loans," Fitch ratings said in the statement.
"Moreover, the risk of further deposit withdrawals from Parex bank, especially by non-residents, will continue despite the effective nationalization of the bank," it added.
The agency also warned that the repayment of Parex foreign liabilities will increase government debt and reduce central bank reserves, further tightening domestic money supply and "exacerbating the current recession."
Fitch downgraded Latvia's ratings for the second time in little more than one month. The rating now stands at "BBB-," only one notch above junk status, and Latvia is also on "watch negative." (Reporting by Walter Brandimarte; Editing by Dan Grebler)