Insider Business S&P affirms its B/B credit rating of Bank of Cyprus

S&P affirms its B/B credit rating of Bank of Cyprus

S&P Global Ratings said Friday that it affirmed its B/B long- and short-term issuer credit ratings of Bank of Cyprus Public Co. Ltd. (BoC). The outlook is positive.

“We expect that robust economic recovery, recovering property prices, ongoing reforms in the legal and judicial frameworks, and the liquidation of Cyprus Co-operative Bank (CCB) will help reduce the significant economic imbalances accumulated by the Cypriot banking system throughout the crisis,” said S&P. It also expects Cyprus’ exceptionally high stock of problematic assets to almost halve by end-2018 compared with one year earlier.

This decline, according to the rating agency will be mostly driven by factors such as the sale of the CCB’s state-owned good assets to Hellenic Bank and the creation of a government-owned run-off entity that will hold the bad assets  from the CCB and will be managed privately and independently.

Also, from further amendments to the legal and judicial framework in order to make it more effective, efficient, and transparent and a specific burden-sharing scheme between banks and the state (the so-called “Estia” scheme) to differentiate vulnerable borrowers from strategic defaulters.

It also calculates that Cypriot banks should be able to reduce NPEs by an additional €2.5 billion, reaching an NPE ratio of about 25% by end-2020 from more than 50% as of end-2017.

Moreover, the rating agency, sees potential for faster NPE reduction through opportunistic market sales, given pressure from the European regulator to do so, and investors` increasing appetite for these types of assets.

The rating agency anticipates that over the next two-to-three years, Cypriot banks will need to accumulate additional credit losses of about 4.0%-5.0% of loans (as of end-March 2018, pro forma of the CCB transaction) to recognize losses embedded in their NPEs. This is in addition to losses of about 1% of loans recognized with the first-time adoption of International Financial Reporting Standard 9.

“Such a high level of provisions, along with restructuring costs to reduce the scale of the branch and employee network, and still very low interest rates and muted volume growth, will continue to weigh on banks’  bottom-line results over the next two-to-three years. We believe that economic risks could eventually ease further for Cypriot banks, although we see this as a medium-term trend,” it adds.

As a result of the ongoing improvement in banks’ asset quality and decreased economic risks, S&P now assess Cyprus’  Banking Industry Country Risk Assessment (BICRA) in group 8 (it was previously in group 9). We have revised upward to b- from b+ our anchor for banks operating primarily in Cyprus.

“ Notwithstanding the improvement we envisage on the Cypriot banking sector, we affirmed the B/B ratings on BoC. This is because BoC is lagging behind its peers in improving its business and financial profile, despite the high 44% decline in the NPE stock from its peak at December 2014,”  says S&P.

It also expects the bank to continue working to reduce its high stock of NPEs, benefiting from a more supportive economic environment. However, it anticipates that the decline will only be gradual, with NPEs only falling to about 30% by 2020.

Top Stories

UK helps employers with slow phase-in of job shield costs

British finance minister Rishi Sunak offered fresh help to employers hit by the coronavirus shutdown on Friday, announcing that future contributions they must make...

One new Covid-19 case from repatriations

There was one new Covid-19 case in Cyprus, the Health Ministry said on Friday, from a total of 2363 tests, bringing the total number...

Limassol: Dead body found in warehouse

  A body has been found in the light shaft of a warehouse on Nicos Georgiou street in Limassol, philenews reports. It said the body of...

Holy Synod to allow weddings during pre-Christmas fasting period

As a result of Covid-prompted wedding postponements, the Holy Synod has decided to allow wedding ceremonies during the pre-Christmas fasting period this year until...

President to discuss phase 3 with scientific advisors on Tuesday

  The team of scientists advising the government on the coronavirus outbreak are due to hold a new meeting with President Nicos Anastasiades on Tuesday...

Taste

Local cuisine: An introduction

Rich in fresh ingredients and tasty herbs, offers the very best of Mediterranean culinary delights. Head out to a tavern and feast on a...

Spiced lamb with beetroot salad and scented yoghurt

Lay the lamb on a tray, skin side down. Rub with crushed garlic, sprinkle with spices and ground pistachios, wrap in plastic wrap and...

Easy seafood pasta with white wine sauce

Ingredients: 2-3 tbsp olive oil 1 garlic clove, chopped 2-3 tablespoons of whipped cream 1/3 cup white wine 300g spaghetti, roughly broken 300-400g of...

Traditional salads that will blow your mind away

This traditional salads will make you actually love salads! Cyprus may be famous for souvla and kleftiko but if you try the traditional salads with...