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articles | 21 November 2017

Capital Intelligence affirms Hellenic’s B+ rating

Capital Intelligence, the Limassol-based rating company, said that it affirmed Hellenic Bank’s B+ financial strength rating and placed it on positive outlook citing an expected decline in bad debts resulting from economic recovery.

“The financial strength rating is primarily supported by very strong liquidity and sound capital adequacy,” Capital Intelligence said in an emailed statement recently. “Both strengths mitigate the bank’s very weak asset quality and profitability and provide a buffer against downside risks, as well as the means for generating renewed growth of business volumes in line with the bank’s ‘fix and build’ strategy”.

Still, the rating of Hellenic Bank, Cyprus’ third largest lender, remains constrained by its non-performing loans amounting almost €2.4bn at the end of June or 56% of total portfolio, the rating company said.

“Downward pressure on the net interest margin and the high cost-to-income ratio are also constraining factors,” Capital Intelligence said. “Given the short-term outlook for limited growth of loans and high provisioning expense, net losses also constrain the rating”.

A new voluntary retirement scheme announced by Hellenic on Monday may further impact its earnings in the second half of the year, the rating company said.

Hellenic, which generated a €62.7mnet loss in 2016, already posted a €22.9m loss in the first six months of 2017. The voluntary retirement scheme aims at reducing the number of workers from 1,555 in 2016 by 200 with a cap in compensation of up to €200,000 per worker.

Capital Intelligence also said that Hellenic’s long-term foreign currency rating was also affirmed at B+ and was too placed on positive outlook, to reflect Cyprus’ sovereign risk profile which has improved.

The lender, which was the only major Cypriot lender that withstood the 2013 banking and fiscal crisis without resorting to a depositors’ bail-in or government bailout, still has weak asset quality metrics, the rating company added. The bank’s agreement with the Prague-based APS Holdings to set up a joint venture to manage its non-performing loans and real estate assets acquired as part of loan restructuring or foreclosures, is expected to improve its performance in the area of recoveries “enabling the bank to focus on growing its business,” Capital Intelligence said.

Source: Cyprus Mail

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