Nicosia: The Bank of Cyprus has been upgraded by SandP Global Ratings to the ‘BBB-‘ category from ‘BB+’, marking its transition to investment grade.
According to Cyprus News Agency, the upgrade reflects the reduced reliance of Cypriot banks on non-resident deposits and the improvement in the loan-to-deposit ratio. SandP notes that Cypriot banks have strong liquidity, with the stable funding ratio reaching 188% in mid-2024, while the liquidity coverage ratio stood at 328%.
At the same time, it highlights that the decline in non-resident deposits continues, with their share dropping to 14.1% by the end of 2024, compared to 38% in 2012. This development is considered positive by the rating agency, as it reduces the risk of sudden capital outflows.
According to SandP, the Bank of Cyprus has particularly high liquidity, with 29% of its assets in cash. Although declining interest rates may impact interest income, the report states that the bank has implemented risk-hedging strategies and efficiency improvements.
The bank’s loan-to-deposit ratio stood at 50% in September 2024, while the cost of risk is expected to decrease to 65 basis points by 2026, from 83 basis points in 2024, due to the reduction of non-performing exposures and the dynamic recovery of the Cypriot economy.
SandP estimates that the capital position of the Bank of Cyprus will remain strong, with a capital adequacy ratio of 12.5%-13% over the next two years. The stable outlook reflects the bank’s strong position in the domestic banking system, though challenges remain due to its reliance on the Cypriot economy.
While the likelihood of a further upgrade is considered low, it could occur if capital adequacy surpasses 15%, accompanied by sustainable profitability and resilience in asset quality. A potential downgrade could happen if the capital adequacy ratio falls below 10% or if the bank’s profitability deteriorates significantly.