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CYPRUS: BOC deposits on review for upgrade by Moody's

02 September, 2014

Moody`s placed on Tuesday the Ca long-term deposit ratings of Bank of Cyprus on review for upgrade.

According to a relevant announcement, the move reflects the successful completion of the bank`s capital increase by 1 billion euros, which “significantly strengthens the bank`s capital buffers and improves its funding and liquidity profile”.

The review will focus on a forward-looking assessment of the extent to which the strengthened capital and liquidity levels will buffer the bank against continued asset-quality pressures, stemming from the still-stressed domestic operating environment.

This review will focus on the credit implications of the final form of the legislative amendments to the foreclosure framework in Cyprus, which will influence the bank`s ability to sell collateral and, in turn, manage provisioning and capital levels and the outcome of the European Central Bank`s (ECB) comprehensive assessment in October, which will determine any further potential capital needs.

BoC`s long-term deposit ratings could be upgraded if Moody`s considers that the recent capital increase will translate into sustained improvements in the bank`s performance. These could include the maintenance of capital buffers in excess of the regulatory minimum and the stabilisation of its deposit base, which would allow it to further reduce its dependence on Euro-system funding.

BoC`s ratings could be confirmed at the current Ca level due to one of more of the following reasons: a) the changes in the legal framework regarding foreclosures fail to materialise or do not strengthen the bank`s recovery prospects, b) the bank`s asset-quality metrics deteriorate beyond current expectations and significantly erode capital buffers, bringing them close to the regulatory minimum c) the bank`s reliance on Euro-system funding increases.

Bank of Cyprus, the island`s largest lender, has been recapitalised last year with depositor money, as part of the €10 billion bailout Cyprus received from the EU/IMF, under which 47.5 per cent of deposits over €100,000 have been converted to shares. At the end of August the bank conclude the increase through the Placing and the open Offer of its share capital by €1 billion.