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Lisbon, Portugal (AHN) – Moody’s Investor Service downgraded on Portugal’s debts to Baa1 and warned that Lisbon was running out of cash to pay all its debts ahead of refinancing due in summer.

The ratings agency said Portugal would likely follow Ireland and Greece as victims of Europe’s sovereign debt crisis and will possibly accept a European Union bailout.

To worsen the situation for Portugal’s caretaker government, the country’s banks refused to lend more fund to the government, which is facing a general election after Parliament voted against Prime Minister Jose Socrates.

The officers of the country’s biggest banks, in a meeting told the governor of the Bank of Portugal to seek help from Brussels instead.

Carlos Santos Ferreira, CEO of Millennium bcp, Portugal’s largest private bank said that while local banks could purchase more debt, it may not be the best option for the country because they should not be burdened with more sovereign debt. The bankers said they have enough Portuguese debts on their balance sheets.

It is the second Moody’s downgrade of Portugal’s sovereign debt in less than a month. Standard & Poor’s and Fitch also downgraded Portugal’s debt rating.

The bankers urged the caretaker government to seek a bridge loan from the EU and the International Monetary Fund to meet the country’s pressing financial requirements.

Portugal needs $12.8 billion (EUR 9 billion) to pay bond redemptions due in April and June. On Friday, Portugal sold $2.36 billion (EUR 1.65 billion) short-term bills as a stop-gap measure.

Because of expectations of a third eurozone bailout, yield on Portugal’s 10-year bond went up to 8.77 percent after Moody’s downgrade, from 5.8 percent 12 months ago.

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