As a result of the continued resilience of the Cypriot economy and credit conditions, which are leading to supporting operating conditions for Cypriot banks, Moody’s has upgraded Bank of Cyprus and Hellenic Bank’s long-term deposit ratings to Baa3 From Ba1, and raised its Micro Profile Score for Cyprus to “Moderate” from “Moderate –“. Besides the significant external shocks, such as the Russia-Ukraine military conflict and related sanctions, the Cypriot economy continues to be resilient, and Moody’s expects GDP growth of 2.3% in 2023 and 2.8% in 2024 for Cyprus, which is higher than the rating agency’s forecast for the euro area (0.7% in 2023 and 1.2% in 2024).
Relating to Bank of Cyprus, improvements in asset quality and capital metrics were emphasized. Specifically, its nonperforming exposures (NPEs) were reduced from 4.0% in December 2022 to 3.6% by June 2023, and coverage surged to 78% of NPEs by June 2023. Moreover, Bank of Cyprus reported a notable rise of Common Equity Tier 1 (CET1) capital ratio, reaching 16.0% by June 2023.
Hellenic bank, on the other hand, has reduced NPEs from 3.6% at the close of 2022 to 3.3% by June 2023. The bank’s CET1 ratio also grew significantly, reaching 20.8% by June 2023 from 19.1% at the end of 2022. Other developments that were noted were the increase in net income to tangible assets to 1.6% during the first half of 2023, as well as a marked leap from 0.4% throughout 2022, spurred by favorable interest rates and judicious cost-reducing measures.
The upgrade of investment status may also be perceived as Moody’s expectations that the two banks will preserve solid profitability and capital metrics, and will continue to reduce legacy asset quality risks, countering any new nonperforming loans (NPL) that may stem from the higher interest rate environment and still-high inflation.