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Fitch piles more junk on the banks

Following Fitch Ratings downgrade of Cyprus sovereign credit rating on Wednesday, it has pushed the islands top three banks further into junk territory and believes that the failure of the Bank of Cyprus and the Cyprus Popular Bank “is imminent”.

Fitch downgrades Cyprus banks
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.

Readers' comments

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  • @Costas – you can find the rating of the Alpha Bank on the Internet using Google.

    In terms of assets, Alpha Cyprus is less than a tenth of the size of the BoC & the CPB and just under a third of the size of the Hellenic.

  • Curmudgeon says:

    Only fools will have deposits in the three banks mentioned here. Even though the deposits are covered by a government guarantee scheme, it would appear the government is in no position to service a failure.

    Based on Fitch, do we have any other option than to dump the banks mentioned and get into one less exposed to failure. I think not but just who is the safest bank in Cyprus, who has the best capitalisation?

    What a mess or should I say another mess.

  • Costas Afortune says:

    What grading is Alpha bank? Surely when it’s realised about all it’s bad debt and court cases, it will drop points?

  • Martyn says:

    Going DOWN! (as predicted, sadly).

    Surely by now anyone with other than ‘everyday’ money in any of these banks, should have ‘got the message’ by now.

    And anyone relying on Gurantess by Cyprus Government to cover their deposits should urgently be asking ‘How.’ and, especially ‘When?’ Will they be repaid.

    Clearly last Thursday’s ‘leaks’ by Government officials were the clear signs of Panic! After the government did little or nothing, between June and October, to seriously address Troika requirements.

    Only when appropriate write downs of overblown, and in many cases highly convoluted, bank lendings are determined and announced by the Troika (possibly this week?) will we know the real depth of the abyss that has been created, and the accurate amount of bailout required.

    Any estimates above €20bn anyone?

  • ron richardson says:

    If the Cyprus bank had any sense it would renegotiate these Swiss franc mortgage loans to help themselves and also to help these people who are paying double the amount they signed up for. Instead the Swiss banks are making huge profits. Who is going to do something about it ?

  • Costas Apacket says:

    The Guano and the Fan move ever closer together.

    Time for the tin hat to come out I think!

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

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