Following in the footsteps of Standard and Poor's, the rating of the Bank of Cyprus has been upgraded by Moody's International Agency.
The rating agency announced its decision on Thursday, 11 July.
In particular, Moody's changed the bank's long-term deposit rating from Baa3 to Baa1 and the outlook from positive to stable. 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 from Baa2 to Baa1, the long-term senior unsecured and junior senior unsecured medium-term note (MTN) ratings were upgraded from (P)Ba2 to (P)Ba1, and the long-term senior unsecured local currency debt rating was upgraded from Ba2 to Ba1.
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 to Ba2 from Ba3 and its local currency long-term non-cumulative preference share rating was upgraded to B1 (hyb) from B2 (hyb).
The upgrade reflects the continued improvement in Bank of Cyprus's creditworthiness, combined with the enhanced protection afforded to the bank's depositors following the recent issuance of senior unsecured debt, Moody's said.
Moody's noted that the bank has strengthened its capital ratios in recent quarters. As of March 2024, Bank of Cyprus reported a strong CET1 regulatory capital ratio of 17.1 per cent, up from 15.6 per cent in June 2023. Moody's expects the bank's capital to continue to grow. The agency also highlighted the significant improvement in Bank of Cyprus's profitability due to higher interest rates, with net income to tangible assets of 2.1 per cent in the first quarter of 2024.
'While profitability will decline from recent highs in the near term as interest rates fall to more normal levels, we expect the bank to maintain solid net profitability above 1% of assets, supported by its cost reduction initiatives and ongoing digital transformation,' Moody's said.
The rating agency also cited the bank's recent issuance of €300 million senior unsecured green bonds in the second quarter of 2024, which enhanced depositor protection. In light of this, as well as the bank's upcoming repayments and planned refinancing over the next three years, Moody's forward-looking LGF analysis now indicates an extremely low level of default losses for junior depositors, resulting in a three-level upgrade from the previous two-level upgrade.
In addition, the stable outlooks on the long-term deposit and senior unsecured ratings reflect the potential for further improvement in asset quality against a backdrop of lower normalised profitability, a generally stable operating environment and stable funding, liquidity and capital ratios. The agency also said it was taking into account planned refinancing.
Finally, Moody's said factors that could lead to an upgrade of the bank's deposit ratings include: an improved internal operating environment, further mitigation of residual asset quality risks, and the success of ongoing digital transformation initiatives that significantly diversify the bank's franchise and revenues. Conversely, a deterioration in the operating environment, a slowdown in asset quality improvement or a deterioration in profitability performance relative to peers could lead to a downgrade.