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In a recent announcement, Fitch Ratings raised Hellenic Bank's long-term rating from "BB-" to "BB+" and assigned a stable outlook to the bank. The agency also upgraded the bank's Viability Rating (VR) to "bb+" from "bb-."
This rating upgrade is a reflection of Fitch's improved assessment of the Cypriot operating environment coupled with the ongoing enhancements in Hellenic Bank's credit profile.
Cyprus' operating environment, as per Fitch, stands to benefit from expectations of sustained domestic economic growth, strengthened banking fundamentals, and a gradual reduction in private sector debt, even though it remains somewhat above average.
The rating also underscores Hellenic Bank's bolstered capitalization, diminished volume of legacy distressed assets (comprising non-performing exposures and net foreclosed properties), structurally enhanced profitability, and a robust deposit franchise that translates into a substantial, low-cost deposit base.
Fitch emphasizes that Hellenic Bank maintains a strong competitive position as the second-largest bank in Cyprus, lending support to its business prospects, solid deposit-based funding, and substantial liquidity. The rating is further bolstered by the bank's improved earnings prospects in a higher interest rate environment, above-average regulatory capital ratios, and manageable asset quality metrics.
The agency notes that Hellenic Bank primarily engages in traditional commercial banking activities, with limited differentiation in fees generated by operations and insurance activities. The bank primarily operates within the domestic market, holding significant market shares, particularly among households. However, it acknowledges limited growth opportunities due to Cyprus' compact size and private sector debt that remains above the average.
Fitch outlines potential triggers for a downgrade, including a sharp deterioration in Cyprus' economic environment, a sustained increase in the bank's Non-Performing Loan (NPL) ratio above 7%, or a drop in the Common Equity Tier 1 (CET1) ratio below 14%.
Regarding a future rating upgrade, Fitch points to several factors, including an improved operating environment in Cyprus, an upgrade in the government's long-term creditworthiness, and expectations of ongoing economic growth in the country. These improvements could potentially lead to better business opportunities for domestic banks, reduced credit risk due to large exposures to the state, and enhanced market access driven by increased investor confidence.
The agency also underscores the importance of a stronger business profile, a lower NPL ratio (excluding government-guaranteed loans), and the maintenance of a CET1 ratio above the bank's medium-term target of 14%, with a limited capital burden from problematic assets as prerequisites for a future upgrade.
