Moody’s raises bank­ing sys­tem out­look to ‘stable’ from ‘neg­a­tive’

Financial Mirror (Cyprus) - - FRONT PAGE -

Moody’s In­vestors Ser­vice has changed its out­look for the Cypriot bank­ing sys­tem to stable from neg­a­tive, re­flect­ing the mod­est eco­nomic re­cov­ery, which will bring an end to five years of acute as­set qual­ity de­te­ri­o­ra­tion.

“Al­though Cypriot banks’ mas­sive stocks of prob­lem loans will re­main high and pro­vi­sion buf­fers low, we ex­pect th­ese stocks to be­gin to ease to­wards the end of 2016,” said Melina Sk­ouri­dou, an an­a­lyst at Moody’s.

The sta­bil­i­sa­tion of as­set qual­ity met­rics will be un­der­pinned by a de­clin­ing rate of new bor­rower de­faults as house­hold in­come and busi­ness cash flows rise in line with grow­ing eco­nomic ac­tiv­ity.

The rat­ing agency an­tic­i­pates 1.2% real GDP growth in 2015 and 1.4% in 2016, im­prov­ing re­struc­tur­ing con­di­tions for banks in Cyprus. At be­tween 50%-54% for the core do­mes­tic banks, banks’ prob­lem loan ra­tios will re­main amongst the high­est of any bank­ing sys­tem Moody’s rates glob­ally, while banks’ pro­vi­sion­ing buf­fers will re­main low.

“Clean­ing up the bal­ance sheet will take time, given the large vol­umes of prob­lem loans the banks have to deal with and the frag­ile realestate mar­ket that will not sup­port a high vol­ume of fore­closed as­set sales,” ex­plained Sk­ouri­dou.

As for the banks’ cap­i­tal, Moody’s expects the rated banks’ cap­i­tal cush­ions to de­cline un­der its base­line sce­nario, though they will re­main above the reg­u­la­tory min­i­mum. The rat­ing agency expects the ra­tio of tan­gi­ble com­mon eq­uity to risk weighted as­set de­clin­ing by 140 ba­sis points to 11.5% over the out­look hori­zon, as banks in­crease their pro­vi­sions against non-per­form­ing loans.

Fund­ing con­di­tions for Cypriot banks will grad­u­ally im­prove, with de­pos­i­tor con­fi­dence — al­beit still frag­ile — in­creas­ing in re­cent quar­ters. In ad­di­tion, banks in Cyprus will fi­nally re­turn to profit in 2016, fol­low­ing five years of losses. For 2015, Moody’s expects a neg­a­tive re­turn on as­sets of around 2%, de­spite be­ing marginally prof­itable in the first nine months of the year, as banks en­hance their pro­vi­sion re­serves.

Fi­nally, while Moody’s rated Cypriot banks are iden­ti­fied by the au­thor­i­ties as do­mes­ti­cally sys­tem­i­cally im­por­tant in­sti­tu­tions, the rat­ing agency’s de­posit rat­ings con­tinue to not in­cor­po­rate any gov­ern­ment sup­port up­lift due to, among other fac­tors, the his­toric ab­sence of sup­port in Cyprus where se­nior bank cred­i­tors, in­clud­ing de­pos­i­tors, were bailed-in dur­ing the coun­try’s fi­nan­cial cri­sis in 2013.

Newspapers in English

Newspapers from Cyprus

© PressReader. All rights reserved.