Cyprus’ largest lender did better than expected to reduce its funding profile and decreasing its non-performing loan portfolio “which reflect effective management of two of the key challenges that confronted the bank following the crisis of 2013,” Capital Intelligence said in an emailed statement on Monday. “Sound capital ratios and the bank’s revitalised franchise, as well as the improving economy and operating environment, also support the bank’s financial strength rating”.

Still, the Bank of Cyprus’ non-performing loan portfolio, which made up 57.8% of total loans or €11.9bn in September, continues to constrain the bank’s financial strength which reflects “the excess of borrowing and oversupply of property in the market,” the rating company, which maintained Bank of Cyprus’ positive outlook, said.

“The bank aims to re-establish its access to debt capital markets and this would facilitate raising its tier 2 capital,” Capital Intelligence said. The listing on the London Stock Exchange, expected to take place before April next year, “may be expected to facilitate capital market access and to broaden the bank’s investor base”.

“At the current level of rating, low profitability is the least important consideration,” it said. “However, although currently viewed as unlikely, on the downside there could still be net losses which would erode capital if they arise and that would be a concern”.

Capital Intelligence, which operates mainly in Asian and African emerging economies, said that for the same reasons it also raised Bank of Cyprus’ long-term foreign currency rating by a notch to B+, adding that it maintained the short-term foreign currency rating stable at B, “indicative of the bank’s low level of liquid assets, systemic risks derived from a dependence on non-resident deposits and still limited access to wholesale and debt capital markets”.

The share of Bank of Cyprus, currently listed in the Nicosia and Athens exchanges, was traded on Monday afternoon at an all-time low of €0.122.

Capital Intelligence said that the reason behind its decision to upgrade Hellenic’s rating had to do with Cyprus’ improved sovereign risk profile. Hellenic’s short-term foreign currency rating was also left unchanged at B and placed the bank’s outlook on all ratings from positive to stable.

“The support rating is maintained at ‘4’, indicating the moderate level of further capital support to be expected from shareholders under extraordinary circumstances,” the rating company said adding that given Hellenic’s “high level of eligible assets, liquidity support would be accessible, if necessary, through emergency liquidity assistance from the European Central Bank.

“Very weak asset quality, low operating profitability, and modest short-term outlook for growth of the asset base and for a return to sustainable net profits are the principal constraints” to Hellenic’s financial strength rating, Capital Intelligence said.

Source: Cyprus Mail