Fitch Ratings said that it had downgraded Bank of Cyprus `long-term senior unsecured debt rating to `CCC` from `B-` and Recovery Rating to `RR6` from `RR4`.
The bank`s other ratings are unaffected by this rating action, Fitch said.
“The rating action follows the introduction of full depositor preference in Cyprus subsequent to the transposition of the EU Bank Recovery and Resolution Directive (BRRD) into national law on 29 May 2019,” the rating agency noted.
“With full depositor preference, corporates and financial institutions deposits, alongside retail and SME deposits, will be preferred to senior unsecured claims in a resolution scenario”.”
The downgrade of BoC`s long-term senior unsecured debt programme rating to `CCC`, two notches below the bank`s Long-Term Issuer Default Rating (IDR) of `B-`, reflects Fitch`s view that “recovery prospects for the bank`s senior unsecured creditors are now poor following the adoption of full depositor preference. This is also factored into the Recovery Rating on BoC`s long-term senior unsecured debt, which is downgraded to `RR6`”.
According to Fitch, BoC`s current funding structure relies on customer deposits, bank deposits and other forms of preferred funding (e.g. central bank funding and repos). BoC has not issued any senior unsecured debt (through its programme) but has issued limited buffers of subordinated debt and hybrid capital.
“In our opinion, BoC`s current funding structure effectively reduces recovery prospects for senior unsecured creditors in a resolution”, it said.