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CYPRUS: Moody's upgrades RCB Bank's Counterparty Risk Assessment

03 August, 2018

Moody's ratings agency on Friday upgraded RCB Bank’s long-term Counterparty Risk Assessment (CRA) to Ba1 from Ba2 and affirmed the short-term Not Prime CRA.


The bank's b2 baseline credit assessment (BCA), b1 adjusted BCA, B1 long-term deposit ratings and Ba2 long-term Counterparty Risk Ratings as well as its Not Prime short-term deposit and Counterparty Risk Ratings remain unaffected.

The move follows the upgrade of the Government of Cyprus issuer and bond ratings to Ba2 with stable outlook from Ba3 and reflects the positioning of the CRA one notch above the sovereign rating.

Moody’s said its analysis of RCB resulted “in three notches of uplift for the CRA from the bank's b1 adjusted baseline credit assessment.

It said although RCB Bank's operations in Cyprus are small, the bank is subject to local regulations and its ratings are constrained by the Cypriot sovereign ratings.

“Nevertheless, despite the strong link between banks' and sovereign ratings, according to Moody's methodology a bank's CR Assessment may exceed the sovereign rating, typically by one notch.”

Moody’s added: “This reflects the agency's view that there is a reasonable likelihood that banking authorities would be able to manage any coinciding bank failures in an orderly manner and that the operational obligations that the CR Assessment represents are more likely to avoid a default.”

The outlook on the bank's deposit ratings deemed stable reflecting Moody's expectations that the bank's financial performance will remain broadly unchanged over the next 12-18 months.

“RCB's ratings could be upgraded following a material strengthening in its standalone franchise, leading to reduced concentration and lower reliance on wholesale funding, while maintaining its current strong capital buffers and low levels of problem loans,” said Moody’s.

An improvement in the credit risk profile of Bank VTB and/or higher likelihood of support may also lead to an upgrade of RCB's ratings, it added.

The agency said RCB's ratings could be downgraded in the event of a material weakening of its franchise, or a deterioration in its financial fundamentals mainly a sharp increase in problem loans, which would erode the bank's profitability and weaken its capital buffers.