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Moody’s downgrades three Cyprus banks again

Despite their efforts to raise fresh funds, Moody’s Investor Service has downgraded the three leading Cyprus bank ratings following Tuesday’s cut to ‘junk’ of the Cyprus sovereign ratings.

MOODY’S Investors Service has downgraded the rating of the Bank of Cyprus by two notches from Ba2 to B1 with a negative outlook, and cut the ratings of the Marfin Popular Bank and the Hellenic Bank by one notch from B2 to B3, both with a negative outlook.

In its press release issued earlier today, Moody’s said that the downgrades reflected the combined pressures on the banks’ standalone credit profiles from the following factors:

  1. The crystallisation of losses on banks’ holdings of Greek government bonds (GGBs) after Greece’s debt exchange, requiring an increase in the banks’ capital to bring their core Tier 1 ratios back up to the domestic regulatory minimum level of 8% and to cover the shortfall indicated by the 9% stress test target of the European Banking Authority (EBA).
  2. An acceleration in problem loan formation in 2011 and Moody’s expectation of continued severe asset-quality pressure from the weak operating environments in Cyprus and Greece, Cypriot banks’ two main markets, leading to higher loan loss provisions.
  3. The weakening funding and liquidity positions, which are the result of deposit outflows which in turn have triggered an increased reliance on central bank funding for some banks.
  4. Moody’s expectation that declining business volumes will pressure pre-provision profitability, thereby weakening internal loss-absorption capacity.

Moody’s said that today’s rating actions conclude the review for downgrade initiated on 8 November 2011.

Further reading

Rating Action: Moody’s downgrades three Cypriot banks and concludes review

Readers' comments

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  • Martyn says:

    The screws continue to tighten and MByes points to the very scariest aspect of all, as yet seemingly not spotted by EZ/IMF personnel, the horrendous asset-backing now supposedly ‘supporting’ the rapidly increasing amounts of non and under-performing loans. Anyone with any serious money still with any of the Cyprus banks needs to think/act quickly, they may be backed by ‘guarantees’ but is there any indication of when, should the ‘worst happen’ as to when any such guarantees might payout?

  • hector says:

    I wonder what devious money making schemes the banks & their various business partners will come up with to increase the flow of ex pat money into their coffers?

  • mbEyes says:

    Yes, but they appear to be unaware of the size and problem of non-performing loans not yet properly provided for in the banks’ financial statements.

  • Mike says:

    The tide is turning and sadly the cracks in the bedrock are showing.

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