S&P Global Ratings on Thursday affirmed its B+/B long- and short-term issuer credit ratings for Bank of Cyprus.
“An obligation rated ‘B’ is more vulnerable to non-payment than obligations rated ‘BB’, but the obligor currently has the capacity to meet its financial commitments on the obligation, although it could be affected by adverse conditions,” the credit rating agency explains on its website.
But S&P said that outlook is stable, with the forecast that the bank will be loss making in 2020 and 2021 and will return to profit in 2022.
“The affirmation reflects our belief that BoC will be able to preserve its current capitalisation through the downturn,” S&P said in a statement, adding that the bank has “ample” capital buffet to weather the Covid-19 crisis.
It added that the Covid-19 crisis will push the Cypriot economy into a recession, estimated at 7.5 per cent in 2020 followed by a rebound of 5.5 per cent in 2021.
“It will take time for sectors that are crucial for the Cypriot economy, such as tourism, to recover, while the small, open nature of the country’s economy might heighten downside risks from additional external shocks in Europe and CIS, which are its main counterparts for tourism,” S&P said.
The agency said it expects “BoC’s operating revenues will decline by about 15 per cent in 2020, before recovering mildly next year,” while “the cost of risk will remain at abnormally high levels – about 200-220 basis points (bps) – while gradually declining, but remaining elevated at 180-200 bps in 2021”.
It however adds that “BoC’s capital buffer is ample enough to support the bank’s asset quality and capital erosion through this turmoil and remain at moderate levels, with its risk-adjusted capital (RAC) ratio standing comfortably above the 5 per cent threshold over the outlook horizon,” adding that supportive measures from public authorities, including monetary policy decisions from the European Central Bank, should help BoC, and other European banks, to navigate the downturn.