28/03/2018 09:19
Moody`s Investors Service has placed on review with direction uncertain Cyprus Cooperative Bank`s Caa2 long-term, local and foreign currency deposit ratings and downgraded the bank`s baseline credit assessment (BCA) and adjusted BCA to ca from caa2. The bank`s long-term Caa1(cr) Counterparty Risk Assessment (CRA) has also been placed on review with direction uncertain while its Not-Prime short-term deposit ratings and NP(cr) short-term CRA have been affirmed.
"The rating action follows the bank`s announcement on 19 March 2018 that it has appointed a financial adviser to assist in identifying interested parties for an investment in either the fully licensed bank or all or part of CCB`s assets and liabilities," the international credit ratings agency says.
According to Moody`s "the two-notch downgrade of the bank`s BCA to ca from caa2 reflects the rating agency`s view that the bank has a provision shortfall which will have to be filled either through a capital increase, with funds coming from private investors or the government, or through the sale of all or part of the bank`s assets and liabilities."
Although the Cyprus Cooperative Bank "currently satisfies all of its regulatory requirements, the bank`s capital shortfall stems from weak solvency and limited progress to date in tackling its asset quality issues," it points out.
Its stock of non-performing exposures (NPEs) stood at 59% of gross loans as of September 2017, down slightly from its peak of 60%. The bank`s provision coverage, the ratio of loan loss reserves to NPEs, at 45%, remained low. Accordingly, it notes, "the cooperative bank`s capital buffer, with a ratio of tangible common equity to risk weighted assets at 11.3% as of September 2017, is vulnerable owing to its high provision gap."
"The review on Cyprus Cooperative Bank`s Caa2 deposit ratings will focus on the outcome of the process launched by the bank, on 19 March, to find investors willing to either subscribe additional capital, or to buy its assets and liabilities," Moody`s says.
It continues pointing out that "the extent of any capital raised, or the credit profile of the acquirer of the bank`s assets and liabilities will be key drivers of the direction of the resulting rating action."
According to the rating agency "an upgrade in the BCA could arise in the event of the bank significantly increasing its capital and/or reducing its bad loans." On the other hand the BCA "would be downgraded to c in the event the bank was placed into liquidation."
"The deposit ratings could be downgraded if the bank is unsuccessful in its efforts to find an investor or the credit risk profile of an acquirer of the bank`s assets and liabilities is weaker than the bank`s current deposit ratings," it says.
The deposit ratings, it adds, "could be confirmed or upgraded if there is a capital infusion or improvement in the bank`s coverage of NPEs, or if the bank is acquired by an entity with a credit risk profile in line with or stronger than that of Cyprus Cooperative Bank."