S&P Global Ratings has upgraded the Bank of Cyprus to ‘BBB-’ from ‘BB+’, marking its transition into investment-grade status.

According to the S&P report, the upgrade reflects the declining reliance on non-resident deposits and an improved loan-to-deposit ratio across Cypriot banks. The agency highlights that liquidity levels remain strong, with the Net Stable Funding Ratio (NSFR) reaching 188% by mid-2024, while the Liquidity Coverage Ratio (LCR) stood at 328%.

The report also notes that the share of non-resident deposits continues to decline, dropping to 14.1% by the end of 2024, compared to 38% in 2012. This trend is seen as positive by S&P, as it reduces the risk of sudden capital outflows.

The Bank of Cyprus maintains exceptionally high liquidity, with 29% of its assets held in cash. Although a decline in interest rates could impact net interest income, the bank has implemented hedging strategies and operational efficiencies to mitigate potential losses.

• The loan-to-deposit ratio stood at 50% as of September 2024.

• The cost of risk is expected to decrease from 83 basis points in 2024 to 65 basis points by 2026, driven by a reduction in non-performing exposures (NPEs) and Cyprus’s strong economic recovery.

• The bank’s capital adequacy ratio is projected to remain between 12.5% and 13% over the next two years.

While further upgrades are considered unlikely in the near term, S&P suggests that another credit rating increase could occur if the capital adequacy ratio surpasses 15%, accompanied by sustained profitability and asset quality improvements.

Conversely, a downgrade may be triggered if the bank’s capital ratio falls below 10% or if its profitability deteriorates significantly.