The rating agency announced its decision on Tuesday 17 December.
Specifically, Moody's revised the Bank's long-term deposit rating from Baa3 to Baa1 and the outlook from stable to positive. According to the agency, this decision was taken against the background of the Bank of Cyprus's continued improvement in creditworthiness and the strengthening of depositor protection.
It should be noted that the upgraded ratings include the Base Credit Assessment (BCA) and the Adjusted BCA (now ba2 to ba1), the long-term and short-term deposit ratings - from Baa3/P-3 to Baa1/P-2, and the long-term counterparty risk rating - from Baa2(cr) to Baa1(cr). In addition, the long-term counterparty risk rating was upgraded to Baa1 from Baa2, the long-term senior unsecured and junior senior unsecured medium-term note (MTN) ratings were upgraded to (P)Ba1 from (P)Ba2 and the long-term senior unsecured local currency debt rating was upgraded to Ba1 from Ba2.
Moody's highlighted that Bank of Cyprus' long-term senior unsecured MTN programme rating was upgraded to (P)Ba1 from (P)Ba2 and its long-term subordinated MTN programme rating was upgraded to (P)Ba2 from (P)Ba3. In addition, the bank's local currency long-term subordinated debt rating was upgraded from Ba3 to Ba2 and its local currency long-term non-cumulative preferred shares rating was upgraded from B2 (hyb) to B1 (hyb).
The upgrades reflect the continued improvement in Bank of Cyprus's creditworthiness and the enhanced protection provided to the bank's depositors. We expect the recent improvement in asset quality to be sustained on the back of falling interest rates, the bank's stringent lending criteria and a reduction in non-performing loans (NPLs),' Moody's said.
Incidentally, Bank of Cyprus's NPE ratio has fallen from 3.6 per cent at end-2023 to 2.4 per cent in September 2024 (including the recent sale of NPEs, which is still pending) and is expected to fall to 2 per cent over the next 12-18 months. Meanwhile, loan loss provisions are also expected to remain stable at around 96 per cent of NPEs, up from 73 per cent at the end of 2023.
Finally, Moody's told us that factors that could lead to an upgrade of the bank's deposit ratings include: an improved internal operating environment, a further reduction in residual asset quality risks, and the success of ongoing digital transformation initiatives that significantly diversify the bank's franchise and revenues. Conversely, a downgrade could occur if the operating environment deteriorates, asset quality deteriorates, or profitability performance deteriorates relative to peers.