LJUBLJANA (AFP) ― Fitch ratings agency lowered eurozone member Slovenia’s credit rating by one notch to “AA-“ on Wednesday over concerns over its banks and failure to implement reforms to stabilize public finances.

“The downgrade of Slovenia is primarily driven by deterioration in the financial position of the banking sector which poses a significant risk that the sovereign will need to contribute to future recapitalization ...” the director of Fitch’s sovereign ratings team, Chris Pryce, said in a statement.

Also of concern were “the defeat of the government’s flagship pension reforms in the June referendum, which is a setback for the long-term sustainability of the public finances.”

Fitch said Slovenia remained on negative outlook, meaning its rating could be cut again.

Last week Moody’s rating agency Slovenia’s rating from “Aa2” to “Aa3,” days after the embattled center-left government of Prime Minister Borut Pahor lost a confidence vote in the culmination of a months-long crisis following the rejection increasing the retirement age from 63 to 65 at a referendum in June.

Early elections were set on Wednesday for Dec. 4.

Fitch said the downgrade reflected its concern about the level and increase of overdue loans at Slovenia’s banks, now nearly at 15 percent, and the low level of capital that the banks hold to absorb losses.

It noted that the country’s largest bank, NLB, just barely passed the European banking stress tests conducted earlier this year, and was under pressure from the EU to raise capital.

Fitch estimated the Slovenian banking sector needed 3.1 billion euros ($4.2 billion) in additional capital assuming bad loans rise to 18 percent and a 50 percent writedown in equity.

The rating agency said it believed “that radical reform is essential to overcome the adverse impact of Slovenia’s rapidly ageing population...”

It cited European Commission forecasts that pension costs would rise from 11 percent of gross domestic product to 19 percent by 2060 if no changes are made.

Fitch noted that Slovenia’s general government budget deficit has been 5-6 percent of GDP for the past three years and the debt nearly doubled from 22 percent of GDP in 2007 to 43 percent expected at the end of this year.

The rating agency said it had revised down its GDP growth forecasts for Slovenia to 1.5 percent this year (from 2.5 percent) and 2.0 percent (from 3 percent) in 2012 given the deterioration in the eurozone’s growth outlook.