Fitch is “continuing to monitor the impact of the current economic environment on the performance of the residential mortgage portfolio, as well as the evolution of the bank's Issuing Default Rater (IDR)”, the agency says. It further adds that the "covered bonds' rating remains vulnerable to a deterioration of the performance of the residential mortgage portfolio”. Additionally, the rating agency notes that “should Cyprus' Country Ceiling be downgraded below 'B', the covered bonds rating could be downgraded”. Fitch expects to resolve the negative watch rating “once it completes its assessment on the performance of the residential mortgage portfolio and there is more visibility on the evolution of BOC's IDR”.

A €10 billion bailout agreed between Cyprus and the Troika (EC, ECB and the IMF) in late March 2013 featured a haircut of 47.5% of uninsured deposits in Bank of Cyprus in a bid to recapitalize the bank, while Cyprus Popular Bank, the island's second larger lender, has been wound down with its good part (insured deposits and assets) absorbed by Bank of Cyprus.

Source: Financial Mirror