Fitch down­grades Cypriot Banks

The Pak Banker - - Front Page -


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.

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