Moody’s Ratings reaffirmed its confidence in the Cypriot banking sector, confirming all ratings for Bank of Cyprus and Eurobank Limited (Eurobank Cyprus / now also Hellenic Bank), while upgrading the outlook on their long-term deposits and senior unsecured debt from stable to positive.

Moody’s decision is a strong indication of its recognition of the progress achieved in risk management and the strengthening of the financial fundamentals of the two systemic banks.

The assessment of the banks was supported by the parallel upgrade of Cyprus’ macroeconomic profile to “Moderate+” from “Moderate”.

Moody’s notes that the Cypriot economy is underpinned by solid economic and institutional foundations, recording growth rates that exceed the eurozone average.

GDP growth is expected to remain at healthy levels, with projections of around 2.5% from 2028 onwards.

Funding conditions have strengthened significantly, with banks relying primarily on low-cost retail deposits and maintaining loan-to-deposit ratios below 50%, while also recording one of the highest liquidity coverage ratios in Europe.

According to Moody’s, the confirmation of the ratings of the two banks is attributed to:

• Strong market positions: A dominant presence in the domestic banking market.

• Low-cost funding: A funding profile primarily based on deposits.

• Resilient financial metrics: Comfortable liquidity, strong capital positions, and sustainable profitability.

• Improved asset quality: Ongoing reduction of problematic assets.

Key risk considerations remain the sensitivity of profitability to interest rate movements and the potential reduction of capital levels due to strategic decisions and dividend distributions.

Positive Outlook: Based on expectations of maintaining strong capital levels (CET1 ratio at 20.2% as of September 2025), satisfactory profitability, and sustainable asset quality.

Risk: Exposure to the domestic real estate market, although Moody’s acknowledges the significant reduction in non-performing loans.

Upgrade trigger: Further upgrades will depend on capital management decisions (growth versus shareholder returns) and the sustained improvement of financial indicators.

Positive Outlook: Supported by exceptionally strong capital levels (CET1 ratio at 36.4% as of September 2025, including earnings) and continued improvement in asset quality.

Risk: Short-term risks related to the operational merger and full integration of Hellenic Bank and Eurobank Cyprus.

Upgrade trigger: The successful and smooth completion of the integration, as well as clarity regarding new strategic and funding plans expected in 2026.

Moody’s clarifies that maintaining strong capital buffers, stable profitability, and the continued improvement of asset quality are the key drivers for further upward rating momentum. Conversely, a material deterioration in the operating environment could lead to a return of the outlook to stable.