Fitch downgrades Cypriot Banks
Global rating agency Fitch has downgraded Bank of Cyprus’ (BOC), Cyprus Popular Bank’s (CPB) and Hellenic Bank’s (HB) Long-term Issuer Default Ratings (IDR) and Support Rating Floors (SRF) to ‘BB-’ from ‘BB’ following the downgrade of Cyprus’ sovereign rating.
The outlooks on the banks’ Long-term IDRs are Negative in line with that of the sovereign. All three banks’ Shortterm IDRs and Support Ratings have been affirmed at ‘B’ and ‘3’, respectively.
At the same time, BOC and CPB’s Viability Ratings (VR) have been downgraded to ‘c’ from ‘ccc’ and ‘cc’, respectively reflecting the agency’s belief that failure of the two banks is imminent. Fitch expects that BOC and CPB will require sizeable capital injections and that these will be provided by Cypriot and/or international authorities.
The downgrade of BOC, CPB and HB’s Long-term IDRs, which remain at their SRFs, is based on Fitch’s assessment that the state’s ability to support its major banks has reduced, as reflected by Cyprus’s sovereign downgrade, which is largely driven by a materially weaker macroeconomic outlook and the continued high level of uncertainty over the costs associated with the overall banking sys- tem’s recapitalisation. However, Fitch continues to incorporate in its assessment of support the fact that the propensity of the sovereign to support the three major Cypriot banks remains strong given their systemic importance in the domestic economy (combined assets totalled EUR77.2bn -430% of GDP - at end-H112) and ii) support from the IMF/EU/ECB (Troika) in respect of Cypriot banks’ recapitalisation is being discussed in the context of Cyprus’s formal request in June 2012 for financial assistance. Precedence in other troubled eurozone countries indicates that bank senior creditors would be fully covered in a support package.