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Fitch places three top banks on rating watch negative

International ratings agency Fitch has placed the Island’s top three commercial banks on rating watch negative meaning that they could be downgraded in the near future as they remain highly sensitive to events in Greece.

FITCH Ratings has placed Bank of Cyprus, the Cyprus Popular Bank and the Hellenic Bank’s Long-term Issuer Default Ratings and Support Rating Floors of ‘BB+’ and Support Ratings of ‘3’ on Rating Watch Negative.

At the same time, the agency has downgraded the Bank of Cyprus’ and the Hellenic Bank’s Viability Rating to ‘b-‘ from ‘bb-‘ and the Cyprus Popular Bank’s to ‘f’ from ‘b-‘.

Fitch said that the move reflects the fact that Cypriot banks remain highly sensitive to the heightened risks in Greece, in particular if Greece was unable to sustain its membership of Economic and Monetary Union.

In the event that the new general elections scheduled for 17 June fail to produce a government with a mandate to continue with the EU-IMF programme of fiscal austerity and structural reform, an exit of Greece from EMU would be probable and this would likely result in widespread default on private sector as well as sovereign euro-denominated obligations.

The Fitch rating actions came as President Christofias told reporters that he had not ruled out asking for Eurozone bailout funds to help the island’s second-largest bank, the Cyprus Popular.

During an official visit to Austria President Christofias said that the government was seeking ways to “avoid entering the support mechanism. We are in discussions and very soon we must take the final decisions”.

In its announcement, Fitch said that the Cyprus Popular Bank is the most exposed to the Greek debt, with 49% of its total loans at the end of last year, followed by the Bank of Cyprus at 34% and the Hellenic Bank at 17%.

Readers' comments

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  • Odd_Job_Bob says:

    Disappointed….

  • @Odd_Job_Bob – catchy as it is, someone has beaten you to ‘Grexodus’. I believe it was first coined by Terence Corcoran writing in the Financial Post.

    ‘Grexit’ is another one – apparently coined by Citigroup economist Ebrahim Rahbari.

    10/10 for effort though!

  • Odd_Job_Bob says:

    For no apparent reason other than I thought it sounds catchy, we should refer to any Greek exit from the Euro as a “Grexodus”!

    You heard it here first folks…

  • @All – Moody’s has now downgraded Cyprus Popular Bank’s outstanding domestic subordinated debt rating to Ca from Caa2 and provisional rating on subordinated debt issued under CPB’s EMTN program to Ca from Caa2.

    The downgrades reflect Moody’s view that the terms of CPB’s offer to buy-back the outstanding floating-rate subordinated notes at a discount constitutes a distressed exchange.

  • @Simon Edwards & @Peter G Davis

    The Basel II Accord requires that all loans that have been unpaid for more than 90 days must be classified as Non-Performing.

    The “fictitious restructuring of loans” means that the debtor has restructured the loan with the bank before the 90 day limit. This enables the bank to classify it as a new loan and therefore avoids it having to classify it as non-performing.

    As banks have to include non-performing loans in their accounts, this practice obviously has an impact on their books.

    I published an article more than 3 years ago about this problem. See Non-performing bank loan restructuring.

  • Odd_Job_Bob says:

    The Voice states below, “ someone in Brussels should be being held accountable, but nothing ever gets said about it”.

    Check out this article from the American Spectator: Truth, Lies, and Euros

    Poignant bits: “the 1997 Stability and Growth Pact (SGP) established strict criteria concerning public spending for countries admitted to the single currency… Within six months of the euro’s entry into circulation, then-European Commission President Romano Prodi labelled the SGP the “Stupidity Pact.” It was, he said, “too rigid” and should not be enforced “dogmatically”.”

    Google “EU corruption” or “Euro convergence creative accounting” and (apart from the bit weirdy David Icke interviews!) you will be so staggered by the corruption revelations you’ll fall off your chair. They were ALL at it!

    However, Cyprus and the EU can’t run from the Credit Ratings Agencies (with the exception of 2007 but we won’t go there just yet!), which is why Sarkozy was trying to discredit them and set up a European one that could lie like the EU does.

    Many people on this forum have talked about Cyprus not being fit to take over the Presidency of the European Union. I think a more fitting match could not possibly be made.

    So no, it’s not “someone in Brussels should be…held accountable” but “EVERYONE IN BRUSSELS”.

  • Simon Edwards says:

    Peter I think this badly performing debt is “rolled over” continuously so as not to be shown as non performing I think there is a 90 day rule which is neglected.

  • Peter G Davis says:

    But the Banks have €7b in toxic debt owed to them by developers. Why not make a start asking by asking for repayments, and taking their villas and BMW’s as part payment?

    Or have these debt been written off? If so they should be shown in the accounts.

  • TheVoice says:

    Costas,

    You are correct the smelly stuff is gong to hit the fan very soon.

    Here’s a point for consideration though. When Greece and Cyprus became members of the Eurozone, someone must have checked the books to make sure they were able to join and meet the criteria, mustn’t they? This leads me to one of two conclusions:

    1) Someone in the EU did not do their job properly
    2) Someone in the EU turned a blind eye because it was politically expedient

    Either way someone in Brussels should be being held accountable, but nothing ever gets said about it.
    I think the contents of these books are already well known.

  • Costas Apacket says:

    We’re almost at the Guano/Fan meeting point and still the Cypriot Government vigorously and desperately resists asking their European ‘partners’ for help and advice at all costs.

    Just what is it that is so very bad that the ECB & IMF may see if the Cyprus Government had to open its books to them?

    So very, very bad that the politicians desperately don’t want them to see it?

  • The views expressed in readers' comments are not necessarily shared by the Cyprus Property News.

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