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06 April, 2020
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Moody’s says BoC better off after UK sale

Bank of Cyprus in a better position to reduce problems following ‘credit positive’ move

Newsroom / CNA

Rating Agency Moody’s has described the sale of Bank of Cyprus UK as credit positive, noting that the sale would place Bank of Cyprus in a better position to focus on reducing its domestic high stock of problematic loans.

Bank of Cyprus last week signed a binding agreement to sell Bank of Cyprus UK, a Bank of Cyprus subsidiary, to Cyenergy Capital Limited, owned by a consortium of UK-based investors.

The sale, which would be worth €117 million with a €3 million profit, is expected to increase Bank of Cyprus’ CET1 Capital by around 65 basis points to 12.65% as of March 2018, the agency said.

“The sale of UK operations amid Brexit uncertainty will allow Bank of Cyprus` management to focus on tackling its domestic operation`s significant asset quality issues.

he increased capital strengthens the bank’s balance sheet and increases the chances of a possible sale of problem loans, which management is exploring,” Moody’s said in its bi-weekly Credit Outlook.

Moody’s noted that Bank of Cyprus’ organic nonperforming exposures (NPEs) were down 45% to €8.35 billion as of March 2018 from a peak of €15.2 billion in March 2015, highlighting however that the bank’s NPEs to gross loans remains among the highest of Moody’s-rated banks and is a key credit challenge, while the stock of provisions against these troubled loans, at around 50%, is relatively low.

Due to the UK loan book’s better quality, Moody’s estimates that the bank’s pro forma NPE/gross loan ratio as of March 2018 will increase to 49.6% from the 44.9% reported in first-quarter 2018.

Nevertheless, the agency added, the bank maintains its target for the ratio`s decline to below 40% by year-end and below 25% over the next three years, excluding any possible accelerated risk-reduction transactions that the bank is currently exploring.

The sale of the UK operations continues its deleveraging trend since 2012, although the bank`s size will remain significant relative to Cyprus` economy. The sale will reduce Bank of Cyprus` total assets by around €2 billion to €21.4 billion, around 110% of the country’s GDP, Moody’s said.

Cyprus  |  Moody's  |  Bank of Cyprus  |  UK  |  BoC  |  Cyenergy

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