Moody's Investors Service downgraded nine Portuguese banks on Friday due to increased asset risk as a result of the banks' holdings of Portuguese government debt and the sovereign downgrade of Portugal in July to Ba2 with a negative outlook.

"The key driver for the downgrades of most banks' debt and deposit ratings is Moody's assessment of the deterioration of their unsupported financial strength," said the ratings agency.

Moody's said it had downgraded by one or two notches the senior debt and deposit ratings of nine banks and downgraded by one or two notches the standalone ratings of six of these banks.

All of the banks' ratings carry a negative outlook with the exception of Banco Portugues de Negocios, which has a developing outlook on all of its ratings. it said.

The six banks which experienced downgrades of standalone ratings and debt and deposit ratings are: Caixa Geral de Depositos, Banco Comercial Portugues, Banco Espirito Santo, Banco BPI, Banco Santander Totta and Caixa Economica Montepio Geral.

Banco Internacional do Funchal and Banco Portugues de Negocios had their debt and deposit ratings downgraded as a consequence of the weaker Portuguese sovereign. The debt ratings downgrade of Espirito Santo Financial Group followed the lower rating of its operating company, BES.

Moody's said it expected a further deterioration of the banks' domestic asset quality due to a weak economic growth outlook and government austerity measures, and liquidity strains due to a lack access to wholesale funding.

Moody's said if recapitalization and deleveraging plans for Portuguese banks were successful they would help restore confidence in the Portuguese banks.

"However, Moody's believes that these plans face significant implementation risks," it said.