Moody’s sees Greek risk to Cyprus banks

Financial Mirror (Cyprus) - - FRONT PAGE -

A de­te­ri­o­ra­tion of the econ­omy in Greece and a po­ten­tial Greek exit (Grexit) from the eu­ro­zone, could have a neg­a­tive im­pact on Cyprus banks, de­spite the fact that the is­land’s lenders have lit­tle or no ex­po­sure to the Greek mar­ket, ac­cord­ing to Moody’s.

The rat­ing agency said on Thurs­day that Cyprus com­pa­nies that do busi­ness in Greece could bur­den the ef­forts by Cypriot banks to im­prove their as­set qual­ity.

The rat­ing agency also said that Cypriot banks would ben­e­fit from a new code for han­dling bor­row­ers in fi­nan­cial dif­fi­culty, that was pub­lished by the Cen­tral Bank of Cyprus last week, not­ing how­ever that their “as­set qual­ity met­rics will re­main weak for sev­eral years to come”.

“The code, which is re­quired as part of the coun­try’s sup­port pro­gramme from the Euro­pean Com­mis­sion, Euro­pean Cen­tral Bank and In­ter­na­tional Mon­e­tary Fund, will ben­e­fit Cypriot banks be­cause it raises aware­ness re­gard­ing bor­row­ers’ fi­nan­cial obli­ga­tions and speeds up loan work­outs of bor­row­ers with fi­nan­cial dif­fi­cul­ties”.

The rat­ing agency’s anal­y­sis added that the code also sets clear time­frames for each step of the restruc­tur­ing process, which will likely speed up the process and re­duce the num­ber of un­co­op­er­a­tive bor­row­ers.

“Cypriot bor­row­ers to date have been largely un­will­ing to en­gage their banks to re­struc­ture their loans ow­ing to a wide­spread belief that they can get away with not re­pay­ing their loans be­cause of the le­gal frame­work’s past weak­nesses,” Moody’s said. “The pub­lished code can also be used by the newly es­tab­lished fi­nan­cial om­buds­man and newly li­censed in­sol­vency prac­ti­tion­ers to raise aware­ness and help bor­row­ers un­der­stand banks’ rights”.

Ac­cord­ing to the rat­ing agency, “although the code’s ap­pli­ca­tion will likely help the banks re­ha­bil­i­tate their loan books, given the large vol­ume of non-per­form­ing loans (NPLs) that Cypriot banks are fac­ing, as­set qual­ity met­rics will re­main weak for sev­eral years to come”.

The ra­tio of NPLs to gross loans re­mained stub­bornly high at 46% of the na­tional loan­book as of March, and was even higher for prin­ci­pal do­mes­tic banks. Bank of Cyprus re­ported an NPL ra­tio of 51.3%, while Hel­lenic Bank’s ra­tio was 54.6%.

Sep­a­rately, Bloomberg quoted the head of the Sin­gle Su­per­vi­sory Mech­a­nism Daniele Nouy as telling the Euro­pean Par­lia­ment that the sub­sidiaries of Greek banks in Cyprus “are liq­uid and sol­vent on a stand-alone ba­sis.”

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