Fitch Ratings has affirmed Bank of Cyprus (BoC) and Hellenic Bank (HB) Long-Term Issuer Default Rating (IDR) at ‘Restricted Default’ but has also upgraded their viability ratings to ‘cc’ and ‘ccc’ respectively from ‘f’.
The VR upgrades follow Fitch’s review of the banks’ standalone creditworthiness after the completion of their recapitalisation and public details of BoC’s restructuring plan, which were key milestones in restoring their solvency.
“However, the VRs continue to reflect Fitch’s view that failure risk is high in light of the challenges the banks and the country face, notably continued asset quality and capital pressures as well as restoring fragile consumer confidence,” the agency said.
Fitch said the banks’ IDRs continued to reflect the strong capital controls in place, including, among others, restrictions on the free movement of capital within Cyprus.
Cyprus introduced capital controls last March to prevent a run on its banks after a bailout shut down a major lender, and imposed losses on large deposits in a second. It was conditional for 10 billion euros in aid from the EU and the International Monetary Fund.
The government welcomed the “hopeful upgrade.”
“The successful and faithful implementation of the support (bailout) programme, which halted the series of consecutive downgrades of the economy in recent years, is the only feasible way to win back Cyprus’ credibility and achieve economic recovery,” deputy government spokesman Victoras Papadopoulos said in a written statement.