FITCH Ratings has downgraded the Long-term Issuer Default Ratings and Support Rating Floors of the Bank of Cyprus, Cyprus Popular Bank and Hellenic Bank to ‘BB-‘ from ‘BB’ following the downgrade of Cyprus’ sovereign rating on Wednesday.
The Outlooks on the banks’ Long-term Issuer Default Ratings are Negative in line with that of the sovereign. All three banks’ Short-term Issuer Default Ratings and Support Ratings have been affirmed at ‘B’ and ‘3’, respectively.
At the same time, the Viability Ratings for the Bank of Cyprus and the Cyprus Popular Bank have been downgraded to ‘c’ from ‘ccc’ and ‘cc’, respectively reflecting the agency’s belief that failure of the two banks is imminent.
Fitch expects that the Bank of Cyprus and the Cyprus Popular Bank will require sizeable capital injections and that these will be provided by Cypriot and/or international authorities.
The Viability Rating for the Hellenic Bank has also been downgraded to ‘cc’ from ‘ccc’ to reflect that failure of the bank appears probable. Fitch questions the capacity of the bank to continue to operate without support as it is highly vulnerable to further deterioration in its credit risk profile and market conditions. However, extraordinary capital support could also be provided to Hellenic Bank if needed.
In its press release Fitch said that the downgrades are based on its assessment that the state’s ability to support its major banks has reduced, which is largely driven by a materially weaker macroeconomic outlook and the continued high level of uncertainty over the costs associated with the overall banking system’s recapitalisation.
Fitch also believes that the lack of progress in negotiations with Troika puts the receipt of a support programme to address Cyprus’ sovereign issues and Cypriot banks’ recapitalisation at risk.
The Negative Outlook indicates that any further downgrade of Cyprus’s sovereign rating and/or any change that reduced the likelihood of international support could lead to a further downgrade of the banks’ Long-term Issuer Default Ratings, Support Rating Floors and Support Ratings.