Fitch downgrades Cyprus banks` credit ratings
Baku, February 3 (AZERTAC). Fitch downgraded BOC, MPB and HB`s Long-term IDRs and SRFs to `BB+` from `BBB-` and their Short-term IDRs to `B` from `F3` and removed them from Rating Watch Negative (RWN). These actions are the direct consequence of Cyprus` sovereign downgrade as well as Fitch`s reassessment of the potential support available to the banks, said Fitch.
While the Cypriot government`s desire to support banks remains unchanged, its ability to do so has been reduced as reflected in the downgrade of Cyprus` rating, said Fitch. As a result, Fitch has downgraded the Cypriot banks` Support Rating to `3` from `2`, revised their SRF to `BB+` from `BBB-
The VR of BOC and HB have been downgraded to `bb-` from `bb` and MPB`s to `b-` from `b+`. The rating actions indicate Fitch`s capital concerns, notably MPB`s, due to their sizeable exposure to the Greek sovereign and economy. The additional one notch cut on MPB`s VR reflects its poor liquidity and funding imbalance as shown in its large reliance on central bank funding, said the rating agency.
Cypriot banks have varying degrees of sovereign debt and loan exposures to Greece, with MPB having the largest (end-Q311, 79% of equity based on nominal values and 45% of gross loans, respectively) followed by BOC (54%; 34%) and then HB (12%; 17%). Fitch expects further pressure on banks` capital, albeit to different degrees, following Greece`s debt restructuring which is likely to result in higher haircuts on banks` Greek government bond (GGB) exposure, in the range of 50%-70%.
In addition, all banks are facing notable asset quality deterioration in Greece and to a lesser extent Cyprus, which Fitch believes will affect profitability and add pressure on their capital.
Government and/or international assistance cannot be ruled out, particularly in the case of MPB, said Fitch.
When compared to domestic peers, MPB had higher reliance on central bank funding at end-Q311 (around 21% of total assets) and less favourable loans/deposits ratio of 124% (93% at BOC and 77% at HB). However, refinancing needs are manageable in the next two years, according to the rating agency.
Fitch expects pressure on the major Cypriot banks` profitability to continue in 2012, largely driven by higher loan impairment charges, notably in Greece, and subdued business volumes and credit growth. However, Fitch expects banks to be marginally profitable, its analysts said. Asset quality indicators will continue to deteriorate as Greece slides further into recession and the Cypriot economy decelerates due to austerity measures to adjust the country`s fiscal imbalances.
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