Moody’s: BOCY cov­ered bonds hiked to B3, ELA re­duced

Financial Mirror (Cyprus) - - FRONT PAGE -

Moody’s In­vestors Ser­vice has up­graded from B3 (on re­view for up­grade) to B1 the rat­ings on the mort­gage cov­ered bonds of the Bank of Cyprus, de­spite the high risk from the de­fault of non-per­form­ing loans or fail­ure of re­cov­ery.

The rat­ing agency has also af­firmed the Caa3 de­posit, (P) Caa3 pro­vi­sional se­nior un­se­cured debt rat­ings and caa3 stand­alone base­line credit as­sess­ment (BCA) of the bank. The Not-Prime com­mer­cial pa­per and short-term de­posit rat­ings have also been af­firmed. Moody’s said the af­fir­ma­tion of the rat­ings re­flects the progress the bank has made with its re­struc­tur­ing plan through the early dis­posal of for­eign as­sets, the re­duc­tion of emer­gency liq­uid­ity as­sis­tance and the sta­bil­i­sa­tion of its de­posit base de­spite the abo­li­tion of de­posit con­trols in Cyprus.

As part of its delever­ag­ing strat­egy, the bank has sold its op­er­a­tions in Ukraine, as­sets in Ro­ma­nia as well as loans in Ser­bia and the UK, al­low­ing the bank to re­fo­cus on its key do­mes­tic mar­ket. The as­set sales, the early re­pay­ment of a sovereign bond and a suc­cess­ful cap­i­tal in­crease have also al­lowed the bank to re­duce its emer­gency liq­uid­ity as­sis­tance (ELA) to EUR 6.5 bln as of April 2015 from a peak of EUR 11.4 bln in April 2013.

Although de­clin­ing, fund­ing re­liance on cen­tral banks, which ac­counted for 27% of as­sets as of April 2015 ac­cord­ing to Moody’s es­ti­mates, re­mains large. More­over, the bank faces a large stock of non-per­form­ing loans (NPLs) and low cash pro­vi­sions (loan loss re­serves) against losses from th­ese ex­po­sures.

A re­duc­tion in the vol­ume of NPLs, im­prove­ment in the cash cov­er­age of NPLs and a ma­te­rial de­crease in cen­tral bank fund­ing could help in fur­ther rat­ing rises, Moody’s said, but warned that risks re­main in the de­te­ri­o­ra­tion in the bank’s as­set-qual­ity met­rics which would sig­nif­i­cantly erode cap­i­tal buf­fers or an in­creased re­liance on Euro-sys­tem fund­ing.

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