Moody’s Investors Service (“Moody’s”) has on Wednesday upgraded Bank of Cyprus Public Company Limited’s (Bank of Cyprus) and Hellenic Bank Public Company Ltd’s (Hellenic Bank) long-term bank deposit ratings to B1 from B3 – indicating a moderate level of concern by the ratings agency according to the agency website.
BOC’s long-term Counterparty Risk Ratings (CRRs), which represent the risk of a bank defaulting on its senior operating and counterparty obligations to Ba3 from B1, and their long-term Counterparty Risk Assessments (CRAs) to Ba3(cr) from B1(cr) – again a moderate level of risk.
There was a significant improvement in the Baseline Credit Assessments — a measure of the probability that a bank will require support to avoid default beyond the support provided by its affiliates — (BCAs) and Adjusted BCAs for both banks to b3 from caa1.
The outlook on both banks’ long-term deposit ratings is positive. As part of the same action, Moody’s has also upgraded Bank of Cyprus’ senior unsecured debt ratings to Caa1, from Caa2, with a positive outlook.
The upgrade of the ratings of the two banks captures their strengthened standalone credit profiles and more specifically their improved solvency, providing increased buffers to the banks to navigate the still challenging operating conditions following the coronavirus pandemic.
In addition, the upgrade to the banks’ deposit ratings also reflects their recent and upcoming MREL (minimum requirement for own funds and eligible liabilities) eligible debt issuances in the coming years, that will change the banks’ liability structure and enhance the buffers that are available to protect depositors.
The positive outlook for both banks reflect Moody’s expectations that the two banks will continue to improve their solvency profiles, despite potential new NPL formation as a consequence of the challenging environment. The ratings could be upgraded in the coming quarters if the banks maintain their strong capital and liquidity, the impact of the coronavirus pandemic on the Cypriot economy is contained and they manage to improve their asset quality profiles through means including asset sales.