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