The increase in provisions announced on Monday, will bring the bank’s core equity tier 1 (CET1) ratio to 12.3%, 280 basis points above the regulatory minimum of 9.5%, and the total capital ratio just 70 basis points above the regulatory minimum of 13%, Moody’s said in an emailed statement on Thursday.

The lender, which issued a €250m tier 2 bond in January, and considers issuing a similar security or additional tier 1 securities to strengthen its capital buffers, Moody’s said.

“We expect an additional negative effect as a result of the implementation of International Financial Reporting Standard 9 (IFRS9), although Bank of Cyprus expects the phased-in fully loaded effect to be manageable relative to its capital plans,” the rating company said.

“The bank’s improved loan-loss reserve buffers will allow it to absorb credit losses and provide a greater ability to take write-offs, which is part of the bank’s strategy to reduce its high stock of non-performing loans,” seen at 52% of its loan portfolio in the first quarter, Moody’s continued.
The rating company said that it expects that following the increase in provisions, the coverage ratio of its non-performing loans will increase to 48% in the second quarter from 42% in the first quarter.

“We expect reserves relative to non-performing loans to increase to 60% in June 2017 from 54% in March 2017, in line with the average for Moody’s-rated euro area banks,” it said. “However, the higher charges will make Bank of Cyprus loss-making in 2017, the sixth year out of the past seven that the bank has reported losses,” Moody’s said. “Given Bank of Cyprus’ size and the extent of the losses, we expect Cyprus’ entire banking system to be loss-making in 2017”.

The bank posted last year a profit of €64m.

Source: Cyprus Mail