S&P confirms Bank of Cyprus credit rating

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Standard and Poor’s has confirmed the country’s largest lender Bank of Cyprus’ long-term and short-term credit rating of “B+/B”, maintaining an outlook positive, hinting at a possible upgrade in the near future.

S&P Global Ratings confirmed the bank’s long-term and short-term credit would remain at “B+/B”, with the outlook positive, as the risks related to the macroeconomic environment, the prolonged period of high inflation, plus the war in Ukraine are manageable.

It said, despite progress in consolidating the bank’s balance sheet and gradually strengthening its capitalisation.

Limited exposure, “Cyprus’ close economic ties with Russia combined with a deteriorating macroeconomic environment and prolonged inflation, make the potential effects on credit quality uncertain.”

But the bank’s outlook remains positive, “reflecting the possibility of an upgrade if financial risks are deemed manageable, and there is more certainty that recent improvement in the bank’s risk profile is sustainable in the medium term.”

According to S&P, the rating confirmation reflects the significant improvements achieved by BoC, particularly in the management of non-performing loans, which have fallen by a cumulative 95% since their peak in 2014, through a mix of NPL sales and organic reduction.

As of March 31, NPLs accounted for 6.5% of total loans, adjusted for the latest NPL package sale (Helix 3), compared to 30% at the end of 2019.

As a result, the Bank of Cyprus “enters a more difficult period in a stronger position compared to the recent past.”

However, as with other banks, the Bank of Cyprus will not be immune to the indirect effects of prolonged inflation and high energy prices.

As a result, the agency added that according to its estimates, some deterioration in asset quality would eventually occur.

The agency argued that Cyprus has stronger relations with Russia in the tourism and business sector than other EU countries.

“Therefore, the economic pressure experienced by Russia could somewhat affect the recovery of the island’s tourism sector”.

S&P also believes the bank has adequate capitalisation, providing room for growth.

“After seven years of de-risking its balance sheet and reducing non-performing assets, the bank’s capitalisation has strengthened.”