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05 Jul 2010
All ratings carry a negative outlook
Limassol, July 05, 2010 -- Moody's Investors Service has today downgraded the deposit and debt ratings
of Marfin Popular Bank Public Co Ltd to Baa2/Prime-2 from A3/Prime-1
and Bank of Cyprus Public Co Ltd to A3/Prime-2 from A2/Prime-1.
At the same time, Moody's has confirmed the deposit and debt
ratings of Hellenic Bank Public Co Ltd at Baa2/Prime-2.
The outlook on all the banks' ratings is negative. The Russian
subsidiaries of MPB and BoC -- Rosprombank and Bank Uniastrum,
respectively -- are not affected by today's rating action.
A detailed list of the rating actions is provided at the end of this press
Today's rating actions conclude the review of rated Cypriot banks
that Moody's initiated on 27 May 2010.
These actions reflect the banks' direct sizable exposure to the
Greek economy through their operations in Greece, and their relative
capacity to manage the resulting pressure on asset quality, earnings
and capitalisation. Concerns about the economic conditions in Cyprus
and the performance of its domestic real estate market also contributed
to today's rating actions.
MARFIN POPULAR BANK PUBLIC COMPANY LTD
The two-notch downgrade of MPB's long-term debt and
deposit ratings stems from the bank's considerable exposure to Greece
-- the highest among the three rated Cypriot banks. MPB operates
in Greece via its subsidiary, Marfin Egnatia Bank SA ("MEB"),
which reported gross loans of EUR14.0 billion in Greece (52%
of group loans) and EUR10.5 billion of deposits (43% of
group deposits). As a result of its Greek operations, problem
loans on a group level are on an upward trend and reached 6.3%
of gross loans at the end of March 2010. According to Moody's,
the expected erosion in asset quality will pressure the bank's earnings
and capitalisation for the next several years. An additional concern
regarding this bank is the challenged funding position of its Greek subsidiary
MEB. The latter's access to the bond market is now very limited
and its access to the interbank market has also been significantly curtailed.
This situation at the subsidiary level has also caused some lessening
of liquidity in MPB's Cypriot operations and has made the group
increasingly dependent on ECB funding. Moody's notes that
MPB intends to fully integrate MEB's operations through a merger
planned for later this year.
BANK OF CYPRUS PUBLIC COMPANY LTD
Moody's decision to downgrade the BoC by one notch reflects the
increasing levels of problem loans, which again comes primarily
from its Greek operations. Having reached 6.0% as
of March 2010, Moody's expects this upward trend to continue
and depress the bank's earnings and capitalization levels in the
next few years. Among the three rated Cypriot banks, BoC
has the second-largest Greek exposure, with 167 branches
and a number of subsidiaries. As of March 2010, the bank
reported gross loans of EUR9.9 billion in Greece (36% of
group loans) and deposits of EUR10.7 billion (37% of group
Moody's notes however that the bank's capital buffers remain
adequate with a Tier 1 ratio at 10.2%. Its funding
and liquidity position also remains satisfactory, reflecting a dominant
position in its domestic market through a strong branch network that provides
for a group loans-to-deposit ratio of 90%.
HELLENIC BANK PUBLIC COMPANY LTD
Today's confirmation of Hellenic Bank's Baa2 deposit ratings
is based on Moody's view that this rating level sufficiently captures
current credit risks stemming from the bank's comparatively small
exposure to Greece. Hellenic Bank is a relatively recent entrant
to the Greek market, where it now operates 21 branches, with
gross loans of EUR953 million (18% of group loans) and deposits
of EUR949 million (15% of group deposits) as of March 2010.
As in the case of its two larger competitors, Hellenic Bank's
problem loans have been rising, reaching 8.9% as of
March 2010. Indeed, Moody's adjusted the bank's
stand-alone financial strength rating to D/Ba2 from D+/Ba1
to reflect the bank's growing challenges. However,
the rating agency notes that capital buffers continue to provide adequate
protection and that the bank's funding and liquidity position is
satisfactory due to its primarily Cyprus-based activities.
The negative outlooks on the banks' ratings reflect the uncertainties
regarding the banks' operating environment over the next two years,
which could lead to pressures on asset quality that are more pronounced
than what is assumed currently under our base case scenario. In
Cyprus, the economic activity remains weak, with GDP contracting
again in Q1 this year. At best, Moody's expects a weak
recovery in 2011. The country's real estate market,
which is a significant component of the banks' loan books,
remains a risk area with unclear growth prospects and weak demand.
Moody's also notes that it will continue to actively monitor the
liquidity and funding position of the Cypriot banks in light of the tight
capital market conditions, the so far modest outflow of deposits
from their Greek operations and the relatively high cost of funding in
Cyprus. The agency however pointed out that concerns in this area
are mitigated by a few factors. The banks are primarily deposit-funded,
with recent indicators pointing to a relatively stable deposit base at
the group level, and relatively low wholesale refinancing needs
over the next 18 months. Liquidity is also supported by highly
stringent liquidity regulations in Cyprus.
Moody's notes that the deposit and debt ratings of the three banks continue
to benefit from systemic support from the Cypriot authorities, reflecting
the national government's capacity and commitment to support its
banking system in case of need. The deposit and debt ratings of
the three Cypriot banks currently benefit from an average two-notch
rating uplift from their stand-alone ratings as a result of the
imputed systemic support assumption.
The ratings of the three Cypriot banks are now as follows:
Marfin Popular Bank Public Co Ltd
- Stand-alone bank financial strength rating (BFSR) downgraded
to D+/Ba1 from C-/Baa2;
- Deposit and senior debt ratings downgraded to Baa2/Prime-2
from A3/ Prime-1;
- Subordinated debt rating downgraded to Baa3 from Baa1;
- The outlook on all ratings has been changed to negative.
Bank of Cyprus Public Co Ltd
- Stand-alone BFSR confirmed at C-, now mapping
to a long-term equivalent of a Baa2 (from Baa1 previously);
- Deposit and senior debt ratings downgraded to A3/Prime-2
from A2/ Prime-1;
- Subordinated debt rating downgraded to Baa1 from A3;
- Junior subordinated notes downgraded to Baa3 from Baa2;
- The outlook on all ratings has been changed to negative.
Hellenic Bank Public Co Ltd
- Stand-alone BFSR downgraded to D/Ba2 from D+/Ba1;
- Deposit and senior debt ratings confirmed at Baa2/Prime-2;
- The outlook on all ratings was changed to negative.
The previous rating action on the three banks was implemented on 27 May
2010, when Moody's placed all of the banks' ratings on review
for possible downgrade.
The principal methodologies used in rating these issuers are Moody's "Bank
Financial Strength Ratings: Global Methodology", published
in February 2007; "Incorporation of Joint-Default Analysis
into Moody's Bank Ratings: A Refined Methodology", published
in March 2007; and "Moody's Guidelines for Rating Bank Hybrid Securities
and Subordinated Debt", published in November 2009, all of
which are available on www.moodys.com in the Rating Methodologies
sub-directory under the Research & Ratings tab. Other
methodologies and factors that may have been considered in the process
of rating these issuers can also be found in the Rating Methodologies
sub-directory on Moody's website.
All three rated banks affected by today's rating actions are headquartered
in Nicosia, Cyprus.
At the end of March 2010, Marfin Popular Bank Public Co Ltd reported
total assets of EUR42.3 billion, Bank of Cyprus Public Co
Ltd reported total assets of EUR39.7 billion, while Hellenic
Bank Co Ltd reported total assets of EUR8.0 billion.
Financial Institutions Group
Moody's Investors Service Cyprus Limited
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Christos Theofilou, CFA
Financial Institutions Group
Moody's Investors Service Cyprus Limited
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades ratings of Marfin and Bank of Cyprus; confirms Hellenic Bank
No Related Data.
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