Saturday, May 16, 2015
Economic conditions continue to improve in Cyprus. Bank of Cyprus upgraded
Cyprus's economy grew 1.6 percent in the first quarter, flash data showed on Wednesday, expanding for the first time since it entered recession in mid-2011 and was forced to accept a financial bailout two years later.
Economic output from January to March also rose by 0.2 percent on a year-on-year basis, improving from the fourth quarter of last year when the economy shrank a revised 1.8 percent.
The island had been mired in recession since the third quarter of 2011, albeit at a shallower rate in the past year.
Fitch Ratings has upgraded Cyprus-based Bank of Cyprus Public Company Ltd's (BoC) Long-term Issuer Default Rating (IDR) to 'CCC' from 'CC' and Hellenic Bank Public Company Limited's (HB) Long-term IDR to 'B-', with a Stable Outlook, from 'CCC'. At the same time, Fitch has upgraded BoC's Viability Rating (VR) to 'ccc' from 'cc' and HB's VR to 'b-' from 'ccc'. HB's Short-term IDR has also been upgraded to 'B' from 'C'. A full list of rating actions is at the end of this rating action commentary. These upgrades mainly reflect improved capital buffers following the completion of equity issuances and evidence of better deposit dynamics amid the gradual relaxation of capital controls, which were fully lifted by the authorities in early April 2015. BoC's rating actions also highlight progress made in asset de-leveraging, enabling a reduction of its reliance on central bank funding.
So this is moving in the right direction. As the economy in Cyprus improves we should begin to see a decline in non performing loans and a continued healing of the bank's balance sheet. It should help that Cyprus passed legislation that will help speed foreclosures and restructuring of real estate loans. The thesis is that over time the bank's condition continues to improve along with continued upgrades which should lead to investor interest and a higher stock price.