Moody’s Investors Service has taken upgraded action on three Cypriot banks - Bank of Cyprus, Hellenic Bank and Russian Commercial Bank (RCB).
Τhe rating action comes in the wake of the recent affirmation of Cyprus’ Caa3 government bond rating and the corresponding outlook change to positive from stable.
For Bank of Cyprus, the island’s largest lender, Moody’s has changed the outlook to positive from negative and affirmed the bank’s Ca long-term deposit ratings.
Moody’s has changed Hellenic Bank’s outlook to positive from negative and affirmed the bank’s Caa3 long-term deposit ratings.
As for RCB, Moody’s has changed the outlook to stable from negative and affirmed the bank’s Caa2 long-term deposit ratings.
On the Bank of Cyprus, Moody’s notes the ratings “capture the high risk that the bank will be faced with additional capital needs stemming from future credit losses”.
“While Moody’s expects the sale of the bank’s non-core assets to support the bank’s regulatory capital levels (core Tier 1 equity stood at 10.2% as of December 2013), the rating agency believes that the weak domestic economic environment, high unemployment rates and on-going property price correction will lead to high problem loans and credit losses that will erode capital.”
It added that the bank’s funding profile remains vulnerable to fragile depositor confidence and the bank has limited excess liquidity buffers to withstand any further deposit outflows (cash and interbank balances stood at 8% of total assets as of December 2013).
The positive outlook on Bank of Cyprus Ca deposit ratings follows the change in outlook of Cyprus government debt ratings to positive, from stable, and captures a potentially higher capacity of the government to provide external support to the bank to meet any capital and liquidity in case of need.
For the Hellenic Bank, Moody’s notes that the weak domestic operating environment will also lead to high problem loans and credit losses.
However, it points out that the raising of Hellenic’s standalone BCA acknowledges that these risks are partly balanced by the bank’s improved capital position, following Hellenic’s successful capital raising exercise in November, executed without any state intervention.
Hellenic’s Tier 1 capital ratio stood at 13.1% as of December, which provides a buffer against high credit losses.
Moody’s said Hellenic had a healthy liquidity profile, to counter any further deposit withdrawals, with no reliance on Central Bank funding.
