The outlook on both banks’ long-term deposit ratings remains positive.

Moody’s said the banks’ ratings reflect their improved funding and liquidity profiles, and strengthened capital levels compared to a few years ago, counterbalanced by the downside risks stemming from the negative effects of coronavirus on the Cypriot economy.

The positive outlooks reflect Moody’s expectations that the two banks will be able to navigate the more challenging environment while maintaining capital and liquidity buffers well above regulatory minimums.

While Moody’s acknowledges that the relative strengthening in the banks’ solvency profiles is already placing upward pressure on the ratings, in the context of their relatively low levels, the coronavirus pandemic continues to lead to material uncertainty.

It said that the ratings could be upgraded in the coming quarters if the banks maintain their strong capital and liquidity.

The impact on asset quality following the resumption of payments for loans currently under a moratorium would have to be limited while damage from the coronavirus pandemic on the Cypriot economy contained.

The rating agency expects the pandemic will lead to “higher problem loan formation” and “weaker recoveries” that will continue to strain asset quality, profitability and capital despite their strengthened solvency profile.

Source: Financial Mirror