Fitch Ratings has downgraded the Bank of Cyprus (BOC), the Cyprus Popular Bank (CPB) and the Hellenic Bank`s (HB) Long-term Issuer Default Ratings (IDR) and Support Rating Floors (SRF) to `BB` from `BB+` following the sovereign rating downgrade and removed them from Rating Watch Negative (RWN).
The Outlook on their Long-term IDR is Negative in line with that of the sovereign.
According to an announcement, issued by Fitch, the downgrade of BOC, CPB and HB`s support-driven Long-term IDRs reflects Fitch`s assessment that the state`s ability to support its major banks has been reduced, as reflected in Cyprus` sovereign downgrade.
The sovereign downgrade was largely based on the agency`s revised baseline assessment of the potential cost of support the Cypriot banks could need from the state to cope with asset quality deterioration in Greece and Cyprus and reach a core capital ratio of 10%.
Fitch estimates that the Cypriot government may need to provide up to 6 billion Euro of bank support (which includes the1.8 billion Euro to restore CPB`s capital base). Fitch acknowledges that its estimates of the potential losses and capital needs of Cypriot banks are subject to considerable uncertainty and are conservative.
At the same time, the Viability Ratings (VR) of BOC and HB have been downgraded to `ccc` from `b-` and removed from RWN reflecting the agency`s belief that further capital needs are likely to be required in view of continued asset quality pressures in Greece and Cyprus. CPB`s VR of `f` has been affirmed to reflect its failure under Fitch`s definitions.
All three banks` Short-term IDRs and Support Ratings have been affirmed and the RWN on the banks` Support Ratings has been removed from RWN.
Fitch judges that the scope for further capital-raising from the private sector is limited and thus assumes that the capital is highly likely to be provided by the sovereign. To provide such support, in Fitch`s view, the sovereign will need to be assisted by international authorities, most likely an EFSF/ESM arrangement.
Finally, the propensity of the sovereign to support the three major Cypriot banks remains strong in Fitch`s view, despite the large fiscal pressure this would bring to the country.
