09/11/2006 10:59
International Credit Rating Firm, Moody’s changed the outlook of Bank of Cyprus and Hellenic Bank to positive and stable respectively. Specifically, Moody’s Investors Service has changed to positive from stable the outlooks for the Baa1 foreign currency long-term deposit rating and D+ financial strength rating (FSR) assigned to Bank of Cyprus Public Company Ltd (BOC). Also changed to positive from stable, are the outlooks for BOC's Baa1 foreign currency senior debt and Baa2 foreign currency subordinated debt ratings. According to the analysts, this rating “reflects the ongoing enhancement of BOC's financial fundamentals over recent financial quarters. Following a few years of poor financial performance, primarily due to the problems faced by its operations in Cyprus, BOC has witnessed a significant improvement in its financial metrics, arising from management's actions to reinvigorate the franchise and to restore the bank's financial condition. Thus, asset quality has improved significantly during 2006 despite the introduction of stricter regulatory criteria for measuring loan performance since January 2006”.
According to Moody’s, the reduction in the inflow of new problem loans and the loan portfolio growth led to recovery. As a result, the bank's ratio of non-performing loans to gross loans declined to 6.6% in September 2006 against 8.6% in March 2006. “Although these trends are viewed positively, Moody's cautions that BOC's main indicators are weaker than those of similarly-rated banks in Europe”. “The bank's economic capital position has recovered significantly, supported by enhanced provisioning coverage for problem loans and a sharp reduction in uncovered pension liabilities”, the report added.
The analysts feel that “a higher level of equity position and/or stronger problem loan provisioning coverage would be more appropriate given the bank's overseas expansion plans -- primarily through branches in Greece but also in light of future plans for Russia and Romania”. “The bank's main profitability indicators have been increasing, supported by wider interest margins, higher fee income, contained operating expenses and declining loan loss provisioning costs. The rating agency believes that the higher profitability trend may continue, underpinned by higher business volumes in the bank's domestic operations, the maturing of the branch network in Greece and lower loan loss provisioning requirements”, Moody’s noted.
According to Moody’s “a more focused strategy in its domestic operations, coupled with better execution, is yielding market share gains in the retail lending business at the expense of the country's credit cooperatives, reinforcing an already dominant, largely unthreatened market position”.
Moody’s also support that an upgrade of BOCY’s rating will depend on the improvement in asset quality, the upward trend in profitability and a higher adjusted equity position.
Hellenic Bank
Moody’s changed the outlook of Hellenic Bank from negative to stable for the D Financial Strength Rating.
“The change to stable from negative in the FSR outlook reflects the ongoing improvement in Hellenic Bank's main financial fundamentals”. “The bank, following a phase of weak financial performance, underwent an extensive top management change in 2005. To arrest a weakening financial performance, the new management has launched a major restructuring programme aiming to improve the bank's financial condition, revive the loss-making operations in Greece, and enhance the overall competitiveness of the group”, the report concluded.
According to Moody’s, the reduction in the inflow of new problem loans and the loan portfolio growth led to recovery. As a result, the bank's ratio of non-performing loans to gross loans declined to 6.6% in September 2006 against 8.6% in March 2006. “Although these trends are viewed positively, Moody's cautions that BOC's main indicators are weaker than those of similarly-rated banks in Europe”. “The bank's economic capital position has recovered significantly, supported by enhanced provisioning coverage for problem loans and a sharp reduction in uncovered pension liabilities”, the report added.
The analysts feel that “a higher level of equity position and/or stronger problem loan provisioning coverage would be more appropriate given the bank's overseas expansion plans -- primarily through branches in Greece but also in light of future plans for Russia and Romania”. “The bank's main profitability indicators have been increasing, supported by wider interest margins, higher fee income, contained operating expenses and declining loan loss provisioning costs. The rating agency believes that the higher profitability trend may continue, underpinned by higher business volumes in the bank's domestic operations, the maturing of the branch network in Greece and lower loan loss provisioning requirements”, Moody’s noted.
According to Moody’s “a more focused strategy in its domestic operations, coupled with better execution, is yielding market share gains in the retail lending business at the expense of the country's credit cooperatives, reinforcing an already dominant, largely unthreatened market position”.
Moody’s also support that an upgrade of BOCY’s rating will depend on the improvement in asset quality, the upward trend in profitability and a higher adjusted equity position.
Hellenic Bank
Moody’s changed the outlook of Hellenic Bank from negative to stable for the D Financial Strength Rating.
“The change to stable from negative in the FSR outlook reflects the ongoing improvement in Hellenic Bank's main financial fundamentals”. “The bank, following a phase of weak financial performance, underwent an extensive top management change in 2005. To arrest a weakening financial performance, the new management has launched a major restructuring programme aiming to improve the bank's financial condition, revive the loss-making operations in Greece, and enhance the overall competitiveness of the group”, the report concluded.
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