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Investing.com -- Fitch Ratings has upgraded the Bank of Cyprus Public Company Limited’s (BoC) Long-Term Issuer Default Rating (IDR) and Viability Rating (VR) to ’BBB-’ from ’BB+’. The outlook on the Long-Term IDR is positive, reflecting the bank’s improved asset quality and strengthened capitalization.
The upgrade is primarily due to the bank’s improved asset quality, stemming from a reduction in legacy problem assets, including non-performing exposures (NPEs) and net foreclosed properties. The bank’s strengthened capitalization has resulted in a manageable capital encumbrance by unreserved problem assets.
Fitch also noted the bank’s structurally sound profitability. Despite falling interest rates, the agency expects the bank’s profitability to remain satisfactory. The bank’s competitive position as the largest domestic bank in the small Cypriot market and its progress with deleveraging legacy problem assets also contributed to the upgrade.
The positive outlook reflects the improving business and financial prospects for Cypriot banks amid continued economic growth, falling unemployment, and decreasing private sector indebtedness. The bank’s plan to develop wealth management, insurance, and other fee-generating activities is expected to benefit from these positive economic trends.
Bank of Cyprus’s problem assets ratio is expected to decline closer to 5% in the next two years, mainly due to a reducing stock of legacy NPEs and continued disposals of foreclosed properties. The bank’s profitability remained strong in 2024, with an operating profit/risk-weighted assets (RWA) ratio of 5.4%. This strong profitability is expected to continue, supported by a benign economic environment and good cost-efficiency.
The bank’s common equity Tier 1 (CET1) ratio of 19.2% at the end of 2024 had adequate buffers over regulatory requirements. The encumbrance of CET1 capital by net problem assets has declined to just above 30% at the end of 2024 on lower NPEs and further disposals of legacy foreclosed properties.
Bank of Cyprus’s funding is supported by a strong deposit franchise in Cyprus. As deposits are well in excess of loans, liquidity buffers are consistently strong.
While a downgrade is unlikely given the positive outlook, Fitch noted that BoC’s ratings are sensitive to a significant weakening of the economic environment in Cyprus. Factors that could lead to positive rating action include a higher assessment of the operating environment for Cypriot banks and further strengthening of the bank’s business profile.
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