Ratings agency Moody’s Investors Service has downgraded the debt status of Banque PSA, which provides captive finance for Peugeot and Citreon, to Ba1, or junk status.

Whilst there have been warnings from rating agencies over the bank since 2009, PSA did receive a €7bn guarantee from the French government in October 2012, although this stalled a proposed alliance between GM and PSA Peugeot-Citroen.

Despite the guarantee, Banque PSA’s finance arm has been hampered by the ongoing struggles of Peugeot and Citroen, whose sales have failed to recover amongst a stagnant, or falling, European car market.

According to Bloomberg, the carmakers’ group sales fell 19% year-on-year in France in Q1 2013, and Peugeot and Citroen sales fell 38% and 27% respectively in the same period in Germany.

Both brands have fared better in the UK, with Peugeot registrations up 6.29% year-on-year in Q1 to 31,260 units, and up 4.68% in March to 19,857 units, and Citroën registrations up 13.29% for the quarter to 22,187 units and up 12.40% for March to 14,606 units. Overall, Peugeot has claimed more than 30,000 sales of the 208 model in the UK in Q1, including the the XY and GTi versions.

However, Moody’s has described the Banque PSA outlook as stable, indicating the rating won’t be reduced again in the near future.

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By GlobalData

Moody’s decision follows those of Standard & Poor’s and Fitch’s, who already rated the banks debt as junk.