After Malta, French bank ratings also downgraded by Moody's

Credit Agricole was cut from AA1 to AA2 and Societe Generale (SocGen) from AA2 to AA3, due to their exposure to Greek debt, while a third bank, BNP Paribas, was kept on review for a possible downgrade.

The two downgraded banks have seen their share prices fall by as much as 60% and 65%.

Only last week, Moody’s downgraded Malta’s foreign-currency and local-currency government bond ratings to A2 from A1 and revised the outlook to negative.

One of the key reasons cited for the decision was lower medium-term economic growth rates. This was caused by a decline in potential output growth as a result of the 2008-09 financial crisis, which left the economy vulnerable to further economic shocks.

The ratings company lowered the two bond ratings to A2 from A1, leaving the ratings six notches below the coveted AAA rating.

The downgrade is likely to put further pressure on the banks, as many investors limit their exposure to them based on their credit ratings.

Moody's focused on the banks' exposure to the Greek economy, although the recent market sell-off reflects a broader concern over the health of other southern European countries such as Italy, as well as over the political will to sustain the euro.

German Chancellor Angela Merkel and French President Nicolas Sarkozy are due to hold talks on Wednesday in response to growing market expectations of an imminent default by Greece.

SocGen has a total exposure to Greek government and commercial debts equal to €6.6 billion, while Credit Agricole has €27 billion, according to their disclosures to the European Banking Authority.

For BNP Paribas the total is €8.5 billion.

Moody's said BNP's rating could also be cut one notch, although it noted that the bank's capital and accumulated profits should be enough to absorb losses from Greece, as well as from the troubled Portuguese and Irish economies.