Moody's Boosts Bank of Cyprus Rating
Enhanced Credit Profile And Strong Capital Adequacy Drive Upgrade
The credit rating agency Moody’s announced today a double upgrade of the long-term deposit rating to Baa1 from Baa3, assigning a stable outlook. This decision is attributed to the ongoing improvement in the bank's credit profile combined with increased depositor protection following the recent issuance of senior preferred bonds.
This upgrade positions the Bank of Cyprus's rating two notches above the investment-grade threshold and one notch above the long-term credit rating of the state. The bank's rating on Moody’s scale is now higher than that of Greek banks.
“The rating action reflects the ongoing improvements in the credit profile of the Bank of Cyprus along with the increased depositor protection provided by the recent issuance of senior preferred bonds,” Moody’s stated in a release.
Specifically, the statement highlights further strengthening of capital adequacy in recent quarters, with the Common Equity Tier 1 (CET1) ratio rising to 17.1% in March 2024 from 15.6% in June 2023, when the previous rating action was issued. “We expect capital to continue to increase, supported by internal capital generation capacity, while capital risks are gradually receding as the bank continues to address its legacy asset issues,” the agency adds.
Moody’s also emphasizes the significant profitability improvement due to higher interest rates, with the net income to tangible assets ratio reaching 2.1% in the first quarter of 2024.
“Although profitability will decline from recent highs as interest rates normalize, we expect the bank to maintain solid net profitability of over 1% of assets, supported by cost reduction initiatives and digital transformation,” Moody’s notes.
Additionally, the agency points out that the upgrade also incorporates the recent issuance of a €300 million green bond, which has increased depositor protection.
According to Moody’s, the stable outlook balances the potential for further asset quality improvement against lower profitability, stable operating environment, steady funding, liquidity, and capital levels.
