Fitch Ratings has upgraded Bank of Cyprus' long-term issuer default rating (IDR) and viability rating (VR) to 'BBB-' from 'BB+'.
The outlook on the long-term IDR rating also remains positive.
Key factors for the upgrade of Bank of Cyprus's ratings include
- Reduction of problem assets - The main driver for the rating upgrade was BoC's improved asset quality. The bank has significantly reduced its non-performing loans (NPLs) and the number of properties in foreclosure. This has reduced the capital charge and improved financial strength.
- Capital growth - The strengthening of the capital adequacy ratio (CET1) has reduced the impact of unsecured problem assets, making the capital burden manageable. At the end of 2024, CET1 stood at 19.2%, exceeding regulatory requirements and creating additional provisions.
- Stable profitability - Despite the decline in interest rates, Fitch notes that the structural strength of the bank's earnings remains strong. The ratio of operating profit to risk-weighted assets (RWA) is 5.4% in 2024, indicating strong cost management.
- Strong market position - Bank of Cyprus maintains its status as the largest financial institution in the country, competing successfully in the small but stable Cypriot market. Its strategic development includes strengthening its asset management, insurance and commissions businesses, which is helping to diversify revenues.
The analysts expect the bank's non-performing loans (NPE) to fall below 1% by 2026, driven by active deleveraging and the realisation of properties acquired against debt.
Fitch's positive outlook is based on the continued growth of the Cypriot economy, falling unemployment and a reduction in the private sector debt burden. This will create new business opportunities for banks and ensure sustainable earnings growth.
Fitch Ratings also noted that Bank of Cyprus's CET1 capital burden of net troubled assets has declined to % at end-2024, a significant improvement compared to previous years.
The upgrade to investment grade strengthens the confidence of investors and international financial institutions in Bank of Cyprus. It also confirms the Bank's financial stability and its ability to grow in a changing economic environment. Combined with solid earnings and a reduction in problem assets, the Bank is poised for further growth and strengthening of its market position.