Limassol, July 21, 2021 -- Moody's Investors Service ("Moody's") has today
upgraded Bank of Cyprus Public Company Limited's (Bank of Cyprus) and
Hellenic Bank Public Company Ltd's (Hellenic Bank) long-term bank
deposit ratings to B1 from B3, their long-term Counterparty
Risk Ratings (CRRs) to Ba3 from B1, their long-term Counterparty
Risk Assessments (CRAs) to Ba3(cr) from B1(cr) and their Baseline Credit
Assessments (BCAs) and Adjusted BCAs to b3 from caa1. The outlook
on both banks' long-term deposit ratings is positive. As
part of the same action, Moody's has also upgraded Bank of
Cyprus' senior unsecured debt ratings to Caa1, from Caa2,
with a positive outlook.
The upgrade of the ratings of the two banks captures their strengthened
standalone credit profiles and more specifically their improved solvency,
providing increased buffers to the banks to navigate the still challenging
operating conditions following the coronavirus pandemic. In addition,
the upgrade to the banks' deposit ratings also reflects their recent
and upcoming MREL (minimum requirement for own funds and eligible liabilities)
eligible debt issuances in the coming years, that will change the
banks' liability structure and enhance the buffers that are available
to protect depositors.
The positive outlooks reflect Moody's expectations that the two banks
will continue to improve their solvency profiles, despite potential
new NPL formation as a consequence of the challenging environment.
The ratings could be upgraded in the coming quarters if the banks maintain
their strong capital and liquidity, the impact of the coronavirus
pandemic on the Cypriot economy is contained and they manage to improve
their asset quality profiles through means including asset sales.
A full list of affected ratings can be found at the end of this press
release.
RATINGS RATIONALE
BANK OF CYPRUS
The upgrade of Bank of Cyprus' ratings and assessments reflects
both the upgrade of its BCA and Adjusted BCA to b3, from caa1,
as well as the impact of its evolving liability structure.
The stronger BCA reflects the bank's strengthened solvency profile,
more specifically the combination of its solid capital metrics together
with improved asset quality following the recent sale of portfolios of
loans with a total gross book value of €1,339 million.
The transaction, that includes primarily nonperforming retail and
small and midsize enterprise loans, has reduced its high stock of
legacy NPEs, with its ratio of NPEs-to-gross loans
declining significantly to 16%, from 30% as of end
2019. The completion of the Transaction also increases the Group's
Common Equity Tier 1 (CET1) ratio as at 31 March 2021 to 14.6%
(pro forma), from 14.4%, which is well above
the bank's CET1 regulatory minimum of 9.7%.
These developments better position Bank of Cyprus to deal with any inflow
of new NPEs arising from the coronavirus-induced economic downturn.
Downside risks related to potential new NPE formation remain elevated,
due to the fluidity of the pandemic and Cyprus' exposure to the
tourism sector, that contributes 12% of the bank's
gross loans, excluding legacy loans. According to Moody's
early signs are however encouraging, as 95% of performing
loans under expired payment deferrals had no arrears up to the 14th of
May 2021, out of which 6% have been restructured.
The upgrade of Bank of Cyprus' deposit ratings also reflects the
bank's recent and upcoming MREL-eligible debt issuances,
which the rating agency expects will enhance the buffers that are available
to protect depositors. On 16 June, Bank of Cyprus issued
€300 million of senior unsecured preferred notes, the bank's
first issuance that complies with the Single Resolution Board's MREL.
The notes are the second issuance under Bank of Cyprus' EMTN programme
in 2021 and increase Moody's confidence in the bank's ability
to issue debt and capital instruments. Moody's expects the
bank to successfully proceed with further issuances in the next four years
of at least 5% of Risk-Weighted Assets (RWAs), to
meet its binding minimum MREL requirement of 23.32% of RWA
by year-end 2025. Issuances could also be senior unsecured
notes, as there are no subordination requirements for Bank of Cyprus.
Bank of Cyprus' B1 deposit ratings are now placed two notches above its
BCA, from one notch above the BCA previously, driven by the
increased protection that the rating agency expects will be afforded to
depositors from more loss-absorbing junior securities. The
ratings capture Moody's banking methodology, under its Advanced
Loss Given Failure (LGF) analysis as it is applied to countries subject
to the EU's Bank Recovery and Resolution Directive, such as Cyprus.
The positive outlook on the long-term deposit and senior unsecured
debt ratings reflects Moody's expectation that Bank of Cyprus will continue
to reduce NPEs further to below 10%, while maintaining capital
and liquidity buffers well above regulatory minimums.
The positive outlook also reflects Moody's view that the impact
of the coronavirus pandemic on the Cypriot economy is unlikely to leave
any lasting damage. This may lead Moody's to reassess its
outlook on the operating environment and Cyprus' macro profile score
in the next few years, which would in turn lead Moody's to
consider a lower portion of the bank's liabilities at a risk of
loss in a resolution.
HELLENIC BANK
The upgrade of Hellenic Bank's ratings and assessments primarily
reflects the upgrade of its BCA and Adjusted BCA to b3, from caa1,
as well as the impact of its evolving liability structure.
Hellenic Bank's stronger BCA reflects its strengthened overall solvency
profile, more specifically its strong capital metrics and profitable
operations, combined with improving asset quality. Hellenic
Bank has maintained its strong capital buffers, with a Common Equity
Tier 1 (CET1) capital ratio of 20.2% as of March 2021,
well above its 9.55% regulatory minimum, and has remained
profitable during 2020, despite higher loan loss provisions due
to the pandemic. The bank has also managed to reduced its NPEs
to 22.4% as of March 2021, from 31.4%
as of December 2019, primarily because of write-offs of around
€0.6 billion of legacy NPEs in 2020 and also as a result of
two small NPE sales with a gross book value of €52 million that are
pending relevant approvals. The bank's NPEs/gross loans is lower,
at 15.8%, if we were to exclude the NPEs that are
guaranteed by the government.
Hellenic Bank's improved overall solvency profile better positions
it to deal with the inflow of new NPEs arising from the coronavirus-induced
economic downturn. Downside risks related to potential new NPE
formation remain elevated, due to the fluidity of the pandemic and
Cyprus' exposure to the tourism sector that contributes 8%
of the bank's gross loans. According to Moody's early
signs are however encouraging as 95% of loans, excluding
loan with government guarantees, under expired payment deferrals
with at least one loan instalment payment due by April 2021, had
no arrears.
The upgrade of Hellenic Bank's deposit ratings also reflects the
bank's upcoming MREL-eligible debt issuances, that
the rating agency expects will enhance the buffers that are available
to protect depositors. Moody's expects the bank to issue
its first debt instrument that complies with the Single Resolution Board's
MREL requirement later in 2021. The bank will need to issue debt
equivalent to at least 5% of Risk-Weighted Assets (RWAs),
to meet its binding minimum MREL requirement of 24.1% of
RWA by year-end 2025.
Hellenic Bank's B1 deposit ratings are now placed two notches above
its BCA, from one notch above the BCA previously, driven by
the increased protection that the rating agency expects will be afforded
to depositors from more loss-absorbing junior securities.
The ratings capture our banking methodology, under our Advanced
Loss Given Failure (LGF) analysis as it is applied to countries subject
to the EU's Bank Recovery and Resolution Directive, such as Cyprus.
The positive outlook on the long-term deposit ratings reflects
Moody's expectation that Hellenic Bank will continue to reduce NPEs further
to below 10%, while maintaining capital and liquidity buffers
well above regulatory minimums. Hellenic Bank has recently shown
signs of improvements in its ability to organically reduce NPEs while
a strong capital position also provides flexibility to the bank to seek
inorganic NPE sales.
The positive outlook also reflects Moody's view that the impact
of the coronavirus pandemic on the Cypriot economy is unlikely to leave
any lasting damage. This may lead Moody's to reassess its
outlook on the operating environment and Cyprus' macro profile score
in the next few years, which would also lead Moody's to consider
a lower portion of the bank's liabilities at a risk of loss in a
resolution.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
All of the banks' ratings could be upgraded if they manage to further
improve their asset quality with a reduction in the NPE ratio to below
10%, while maintaining solid capital metrics, and if
Moody's concludes that the impact of the coronavirus pandemic on
the Cypriot economy will not leave any lasting damage. The banks'
ratings may also be upgraded following the buildup of larger loss-absorption
buffers following Moody's expectations of changes to the banks' liability
structure or if the rating agency concludes that a lower portion of the
banks' liabilities are at a risk of loss in a resolution.
The positive outlook on the banks' deposit ratings may be changed to stable
if the rating agency expects the banks to experience a significant weakening
in their capital and overall solvency profiles, possibly as a consequence
of a prolonged economic disruption because of the pandemic.
LIST OF AFFECTED RATINGS
..Issuer: Bank of Cyprus Public Company Limited
Upgrades:
....Adjusted Baseline Credit Assessment,
Upgraded to b3 from caa1
....Baseline Credit Assessment, Upgraded
to b3 from caa1
....Long-term Counterparty Risk Assessment,
Upgraded to Ba3(cr) from B1(cr)
....Long-term Counterparty Risk Ratings,
Upgraded to Ba3 from B1
....Senior Unsecured Medium-Term Note
Program, Upgraded to (P)Caa1 from (P)Caa2
....Junior Senior Unsecured Medium-Term
Note Program, Upgraded to (P)Caa1 from (P)Caa2
....Subordinate Regular Bond/Debenture,
Upgraded to Caa1 from Caa2
....Senior Unsecured Regular Bond/Debenture,
Upgraded to Caa1 from Caa2, Outlook Remains Positive
....Long-term Bank Deposit Ratings,
Upgraded to B1 from B3, Outlook Remains Positive
Affirmations:
....Short-term Counterparty Risk Assessment,
Affirmed NP(cr)
....Short-term Counterparty Risk Ratings,
Affirmed NP
....Short-term Bank Deposit Ratings,
Affirmed NP
Outlook Action:
....Outlook, Remains Positive
..Issuer: Bank of Cyprus Holdings Public Ltd Company
Upgrades:
....Senior Unsecured Medium-Term Note
Program, Upgraded to (P)Caa1 from (P)Caa2
....Subordinate Medium-Term Note Program,
Upgraded to (P)Caa1 from (P)Caa2
....Subordinate Regular Bond/Debenture,
Upgraded to Caa1 from Caa2
Outlook Action:
....No Outlook
..Issuer: Hellenic Bank Public Company Ltd
Upgrades:
....Adjusted Baseline Credit Assessment,
Upgraded to b3 from caa1
....Baseline Credit Assessment, Upgraded
to b3 from caa1
....Long-term Counterparty Risk Assessment,
Upgraded to Ba3(cr) from B1(cr)
....Long-term Counterparty Risk Ratings,
Upgraded to Ba3 from B1
....Long-term Bank Deposit Ratings,
Upgraded to B1 from B3, Outlook Remains Positive
Affirmations:
....Short-term Counterparty Risk Assessment,
Affirmed NP(cr)
....Short-term Counterparty Risk Ratings,
Affirmed NP
....Short-term Bank Deposit Ratings,
Affirmed NP
Outlook Action:
....Outlook, Remains Positive
PRINCIPAL METHODOOGY
The principal methodology used in these ratings was Banks Methodology
published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed
by Moody's Investors Service Limited, One Canada Square,
Canary Wharf, London E14 5FA under the law applicable to credit
rating agencies in the UK. Further information on the UK endorsement
status and on the Moody's office that issued the credit rating is
available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Christos Theofilou, CFA
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Henry MacNevin
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
