Moody’s considers downgrading Cypriot banks’ financial strength ratings
Moody's Investors Service has placed the foreign currency deposit and foreign currency bond ratings of Cypriot banks on review for a possible downgrade. Moody's is also placing the financial strength rating (FSR) of Cyprus Popular Bank on review for a possible downgrade.
With regard to the review for a possible downgrade of the deposit and bond ratings, Moody’s notes that the foreign currency liabilities of the Cypriot banks are growing rapidly, as each Cypriot bank expands overseas, with particular emphasis on Greece.
Against this background, states Moody’s, there may be timing and support delays due to possible oversight and government resource constraints within a fixed exchange-rate environment in Cyprus that is subject to capital controls.
Moody’s also notes that following likely EU accession in May 2004 and in view of the stricter EU regulations regarding state support, the Cypriot authorities may not be able to provide non-market-based support to the banks.
During the review for possible downgrade, Moody’s will assess the ability of the Cypriot authorities to provide support for the banks, post-EU accession.
Pertaining to the review for a possible downgrade of the FSR of Cyprus Popular Bank (CPB), Moody's noted that continued domestic market weakness and provisioning needs along with cost-effective capital-raising constraints are likely to slow the diversification benefit of overseas expansion for the bank.
Continued domestic market weakness and constricted overseas expansion may weaken CPB’s intrinsic financial strength. During the review for possible downgrade, Moody’s will assess the quality of the CPB’s earnings and the sufficiency of its provisions and capital-raising ability relative to the bank’s operating environment and growth potential.
The following ratings were placed on review for a possible downgrade: Bank of Cyprus: the A2 long-term foreign currency deposit rating and A3 foreign currency subordinated bond rating; Cyprus Popular Bank: the A2 long-term foreign currency deposit rating, the A3 foreign currency subordinated bond rating and the C- financial strength rating; Hellenic Bank: the A2 long-term foreign currency deposit rating. — (menareport.com)
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