Fitch Ratings on Friday affirmed Bank of Cyprus’ (BoC) Long-Term Issuer Default Rating (IDR) at B- with a positive outlook and viability rating (VR) at b-, and that of Hellenic Bank’s (HB) (IDR) at B+ with a stable outlook and VR at b+.
Fitch said that BoC’s ratings reflect its weak asset quality, which results in very high encumbrance of capital by unreserved problem assets, and profitability, which is still constrained by loans impairment charges. The ratings continue to reflect BoC’s strong franchise and market position as the largest bank in Cyprus, an improved funding profile and adequate liquidity buffers.
“The Positive Outlook takes into account our expectation that the volume of problem assets will continue to decline at a reasonably good pace,” it adds.
Furthermore, it says the lender’s ratings could be upgraded if it successfully completes its planned large-scale problem assets sale without undermining its capital position.
“A negative asset quality shock, lack of further credible reduction of problem assets or a material weakening of profitability and capital would be rating-negative,” Fitch pointed out.
Regarding Hellenic Bank, Fitch said its ratings reflect its strong franchise and market position as the second-largest bank in Cyprus and improved overall financial profile, mainly following the acquisition of Cyprus Cooperative Bank LTD (CCB) in September 2018, which came with a capital increase (€150 million).
They also reflect the smooth integration of CCB, which was completed last September in line with plans. However, the bank’s ratings remain constrained by weak asset quality by international standards and high capital encumbrance by unreserved problem assets, Fitch points out.
“We consider the acquisition of CCB as supportive to HB’s business mix and profitability prospects,” it said.