Fitch Ratings has placed Hellenic Bank’s long-term issuer default rating (IDR) of ‘B’ and Viability Rating (VR) of ‘b’ on ratings watch positive (RWP). Fitch has also affirmed the lender’s short-term IDR at ‘B’.
The rating action follows the announcement that Hellenic signed an agreement with the Cyprus Cooperative Bank to acquire certain assets and liabilities. Hellenic will acquire total assets of €10.3 billion as well as customer deposits of €9.7bn.
Fitch said the RWP “reflects our view that the acquisition will overall be positive for HB’s credit profile through a significantly strengthened franchise in Cyprus, improved asset quality and better longer-term profitability prospects.”
The still weak quality of the combined loan book and high capital encumbrance by unreserved problem loans by international standards, as well as significant execution risks related to the integration of a balance sheet that is roughly 1.5 times HB’s current size, mean that any upgrade at this stage is likely to be limited to one notch.
The combined entity will become the second-largest bank in Cyprus after Bank of Cyprus with estimated market shares in performing loans and deposits of over 20 per cent and over 30 per cent respectively.
“We believe that this will improve HB’s pricing power and would be positive for the bank’s profitability over the longer term.”
The transaction will improve the quality of HB’s loan book. The ratio of non-performing exposures (NPE) to gross loans in the acquired loan book, 14 per cent, was significantly below HB’s 52 per cent, at end-March 2018. The NPE ratio for the combined entity would be about 33 per cent.