Fitch places Cypriot banks on rating watch negative citing haircut risks

Fitch Ratings announced Tuesday it has placed the ratings of Bank of Cyprus (BOC), Cyprus Popular Bank (CPB) and Hellenic Bank (HB) on Rating Watch Negative to reflect downside rating risks arising from the deliberations to impose losses onto the banks’ depositors.

The Euro area Finance Ministers decided on Saturday that a bailout for Cyprus should include losses on banking deposits with a view to secure €5.8 billion. Initially, Cyprus agreed to impose ‘levies’ of 9.99% on all deposits over €100,000 and of 6.75% on deposits below that level, although these thresholds may be subject to change, with a view to protect smaller deposits.
The Cypriot authorities are currently working on a revised bill that would be debated in an extraordinary House of Representatives Plennary session scheduled for today.

itch said the Negative Watches will be resolved after a decision by the Cypriot parliament on the above extraordinary measures, which could come as early as today.
"The crystallisation of such significant losses on depositors would constitute a restricted default (RD) under Fitch’s rating definitions, in which case the IDRs would be downgraded to ‘RD’. The banks’ Support Ratings and Support Rating Floors would also be downgraded to ‘5’ and ‘No Floor’," the agency added.