Moody’s credit rating agency downgraded on Friday Bank of Cyprus deposit ratings to Ca, negative outlook, from Caa3.
Moreover, they downgraded senior unsecured debt ratings to C, from Caa3 while the agency confirmed Hellenic Bank’s deposit ratings at Caa3 with a negative outlook.
The subordinated and junior subordinated debt ratings of BoC have been affirmed at C. Hellenic does not have any rated debt outstanding.
Actions reflect, according to the rating agency, their expectation of material losses for BoC creditors in the coming months, and the risk of potential losses for Hellenic Bank in the coming years.
Explaining the rationale behind the downgrade of Bank of Cyprus’ deposit ratings to Ca from Caa3, Moody’s say it reflects their expectation of sizable losses to uninsured depositors in the coming months.
Based on Moody’s view that BoC’s capital deficit will widen following recent events and the subsequent deterioration in the operating environment, the rating agency expects that losses to BoC’s depositors to sufficiently recapitalise the bank will be sizable, but will likely not exceed 65%.
On the confirmation of Hellenic Bank’s deposit ratings, Moody’s say it reflects their view that the Caa3 rating level captures the risk and range of any potential losses to Hellenic’s depositors.
It is added that Hellenic’s stronger capital buffers have enabled it to maintain its private ownership, and avoid being subject to Cyprus’ recently adopted bank resolution framework.
Moody’s note however that the bank will require significant additional capital in the coming years, owing to the acceleration in asset-quality deterioration following recent events.
Although the rating agency considers that the magnitude of Hellenic’s capital needs could potentially be met through private resources, it also adds the possibility that capital resources could be stressed given the expected very challenging environment.
That could ultimately necessitate a broader recapitalization, which is reflected in the Caa3 deposit rating.
Finally, Moody’s say that upwards rating pressure in the ratings is unlikely, while downward pressure on the banks’ ratings would develop following a failure to implement a bank recapitalisation programme or to maintain external liquidity support.
Other factors include, according to the agency, the higher asset-quality deterioration than currently expected, resulting in larger loss rates for bank depositors or creditors and/or Moody’s view that the risk of Cyprus exiting the euro area has increased.
