04/10/2016 12:29
Moody`s rating agency marked Monday as credit positive, the inflow of deposits amounting to €873 million at the Cypriot banking system in August 2016, raising deposits at the highest point of the last three years since April 2012.
As the agency points out in its weekly bulletin "Credit Outlook", although Cypriot banks have a high stock of problem loans that will challenge them for a prolonged period, the increase in deposits, which was driven by less confidence-sensitive domestic residents’ deposits, will improve banks’ funding structure, a credit positive.
According to Moody`s, it was the first time in six years there has been a net deposit inflow for five consecutive months, indicating improved funding conditions in a system where depositor confidence remains fragile following depositors’ losses in March 2013.
“The improved economic sentiment, as a consequence of accelerating economic growth, declining unemployment, and the conclusion of Cyprus’ Economic Adjustment Programme in March 2016, has partly restored depositor confidence, which led to the gradual return of mattress money”, Moody`s points out.
However, despite the increased economic activity, the agency expect deposit growth to remain modest as an increasing number of borrowers use a portion of their income to repay debt.
It also notes that although all three large domestic banks, the Bank of Cyprus Public Company Ltd , the Hellenic Bank Public Company Ltd and the Cooperative Central Bank, stand to benefit from rising depositor confidence in the banking system, BoC is currently the entity with the weakest funding structure and consequently has the most to gain.
“We expect that the growing deposit balances and increased financing from other financial institutions as creditor confidence strengthens will enable BoC to fully repay its Emergency Liquidity Assistance (ELA) funding during 2017”.
BoC’s reliance on ELA has declined by €9.9 billion since its peak to €1.5 billion (around 7% of assets) as of August 2016, ahead of its restructuring plan.
As the agency points out in its weekly bulletin "Credit Outlook", although Cypriot banks have a high stock of problem loans that will challenge them for a prolonged period, the increase in deposits, which was driven by less confidence-sensitive domestic residents’ deposits, will improve banks’ funding structure, a credit positive.
According to Moody`s, it was the first time in six years there has been a net deposit inflow for five consecutive months, indicating improved funding conditions in a system where depositor confidence remains fragile following depositors’ losses in March 2013.
“The improved economic sentiment, as a consequence of accelerating economic growth, declining unemployment, and the conclusion of Cyprus’ Economic Adjustment Programme in March 2016, has partly restored depositor confidence, which led to the gradual return of mattress money”, Moody`s points out.
However, despite the increased economic activity, the agency expect deposit growth to remain modest as an increasing number of borrowers use a portion of their income to repay debt.
It also notes that although all three large domestic banks, the Bank of Cyprus Public Company Ltd , the Hellenic Bank Public Company Ltd and the Cooperative Central Bank, stand to benefit from rising depositor confidence in the banking system, BoC is currently the entity with the weakest funding structure and consequently has the most to gain.
“We expect that the growing deposit balances and increased financing from other financial institutions as creditor confidence strengthens will enable BoC to fully repay its Emergency Liquidity Assistance (ELA) funding during 2017”.
BoC’s reliance on ELA has declined by €9.9 billion since its peak to €1.5 billion (around 7% of assets) as of August 2016, ahead of its restructuring plan.
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