Moody’s ratings agency said Wednesday Bank of Cyprus’ sale of almost €1bn in non-performing loans to investment firm PIMCO was credit positive.
BoC announced that the sale of non-performing loans with a gross book value of €916m PIMCO would be completed in the first half of 2021, subject to a number of conditions, including customary regulatory and other approvals.
Upon completion, the sale, which relates primarily to non-performing retail and small and midsize enterprise loans, will reduce the bank’s nonperforming exposure (NPE) ratio by five percentage points, a credit positive.
The bank’s pro forma ratio of NPEs to gross loans will fall to 22 per cent as of June 2020, from 30 per cent as of year-end 2019, and includes an organic NPE reduction of €278m and the completion of an earlier sale of €133m of primarily retail unsecured NPEs.
The agency warned however, that weak asset quality remained a key credit challenge for BoC.
We expect a widespread economic disruption caused by the coronavirus outbreak, with the Cypriot economy contracting by 7.5 per cent in 2020, with the economy returning to healthy growth rates from 2021.
BoC’s NPEs have declined to €2.6bn in June 2020 from a peak of €15.2bn NPEs in March 2015, but remain high at 22 per cent of gross loans, Moody’s said.