Moody’s has changed its outlook on the three Cypriot banks – Bank of Cyprus, Hellenic Bank and the Russian Commercial Bank Ltd (RCB).
For Bank of Cyprus, the island’s largest lender, Moody’s changed the outlook to positive from negative and affirmed the bank’s Ca long-term deposit ratings. Moody’s has also upgraded its senior unsecured medium-term note programme ratings to (P)Ca, from (P)C.
Moody’s changed Hellenic Bank’s outlook to positive from negative and affirmed the bank’s Caa3 long-term deposit ratings.
As for RCB, Moody’s changed the outlook to stable from negative and affirmed the bank’s Caa2 long-term deposit ratings. The bank’s Not Prime short-term deposit ratings and its E standalone BFSR, equivalent to a Caa2 standalone BCA, have been affirmed, with no outlook.
For Bank of Cyprus, Moody’s notes the ratings “capture the high risk that the bank will be faced with additional capital needs stemming from future credit losses.”
While Moody’s “expects the sale of the bank’s non-core assets to support the bank’s regulatory capital levels (core Tier 1 equity stood at 10,2% as of December 2013)”, the rating agency believes “that the weal domestic economic environment, high unemployment rates and on-going property price correction will lead to high problem loans and credit losses that will erode capital,” it notes, adding that the bank’s funding profile remains vulnerable to fragile depositor confidence and the bank has limited excess liquidity buffers to withstand any further deposit outflows (cash and interbank balances stood at 8% of totals assets as of December 2013).
The positive outlook on Bank of Cyprus’ Ca deposit ratings follows the change in outlook of Cyprus government’s debt ratings to positive, from stable, and captures a potentially higher capacity of the government to provide external support to the bank to meet any capital and liquidity in case of need.
For the Hellenic Bank, Moody’s notes that the weak domestic operating environment will lead to high problem loans and credit losses.
However, it points out that the raising of Hellenic’s standalone BCA acknowledges that these risks are partly balanced by the bank’s improved capital position, following Hellenic’s successful capital raising exercise in November 2013, executed without any state intervention.
“Hellenic’s Tier 1 capital ratio stood at 13.1% as of December 2013, which provides a buffer against high credit losses”. In addition, Moody’s notes the bank’s healthy liquidity profile to counter any further deposit withdrawals, with the bank having no reliance on central bank funding.
With regard to RCB, Moody`s notes that the change in the outlook to stable, from negative, reflects the gradual easing of some elements of deposit controls, balanced against the fact that restrictive deposit controls still remain in place for the bank’s domestic (or resident) customers.