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Rating Action:

Moody's upgrades Bank of Cyprus' and Hellenic Bank's deposit ratings to B1, from B3, with positive outlooks

21 Jul 2021

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

No Related Data.
© 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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