At the same time, Hellenic Bank’s baseline credit assessment (BCA) and adjusted BCA were upgraded to caa1 from caa2, and its long-term Counterparty Risk Assessment (CRA) to B1(cr) from B2(cr).

The outlook on both banks’ long-term deposit ratings is positive. All other ratings and assessments of the two banks have been affirmed at their current level, it said.

The rating action concludes the review for upgrade on Hellenic bank’s ratings that was initiated on 13 July 2018. The upgrade of Bank of Cyprus’ ratings is driven by changes in the bank’s liability structure. In particular, the issuance of €220 million of Additional Tier 1 (AT1) securities in December 2018, enhances the buffers that are available to protect depositors and non-debt counterparty financial liabilities captured by the CRR.

The upgrade of Hellenic Bank captures its strengthened franchise, asset quality and capital following (1) the integration of €9.3 billion of predominantly performing assets and liabilities, mainly deposits, acquired in the summer from the now resolved Cyprus Cooperative Bank Ltd (CCB), and (2) a capital increase of €150 million, for which the bank has already received binding commitments and which will be completed in the first quarter of 2019. Hellenic Bank’s deposit ratings continue to benefit from one notch of rating uplift following the acquisition of, predominantly, retail deposits and the application of Moody’s advanced Loss Given Failure (LGF) analysis.

“For both banks the positive outlook assigned reflects Moody’s expectations of further improvements in the banks’ financial fundamentals, mainly asset quality over the next 12-18 months, in the context of an improved operating environment in Cyprus,” it said.

The rating actions incorporate the improvements in the operating environment which have prompted the rating agency to raise the Macro Profile for banks operating in Cyprus by one notch to “Weak+”, from “Weak”.

The rating agency expects strong growth trends with a 3.7% growth in real GDP for 2019, a rate significantly above the average forecast for euro area countries of 1.8%, and a continued decline in unemployment that stood at 9.2% as of November 2018.

Cyprus has registered one of the sharpest declines in unemployment amongst EU countries since 2013. The improvements in economic conditions raise loan demand by local businesses and households, strengthen repayment capacity, and support asset values benefiting banks’ revenues and bad loan recoveries,” Moody’s said.

Source: Cyprus Mail