Newsroom / CNA
Standard & Poor’s (S&P) has upgraded Bank of Cyprus’ long-term issuer rating to BB+, just one notch below investment-grade status, and assigned a positive outlook. This comes shortly after the upgrade of Cyprus’ long-term rating to BBB+, also with a positive outlook.
S&P cited the bank’s strengthened capital position and strong earnings capacity, along with a broader reduction of financial risks in Cyprus, as reasons for the upgrade. "Our ratings balance BOC's solid position as one of the leading banks in Cyprus and strong capitalization against the elevated, albeit easing, risks for banks operating only in Cyprus," S&P stated.
The agency expects Bank of Cyprus’ net interest margins to remain robust, projecting 350-400 basis points in 2024 and 2025, despite a slowdown in interest rate benefits. Tight cost control is expected to further sustain earnings, with cost-to-income ratios moving toward 44%-46% by the end of 2026, significantly lower than the 66% average from 2018-2022.
S&P also forecasts that the group's return on tangible equity will remain above 16% in 2024 and 12%-13% in 2025-2026. Additionally, the normalization of the cost of risk is expected to shield earnings from changes in interest rates.
On the broader Cypriot banking system, S&P noted that banks have largely absorbed credit losses from cleaning up their balance sheets after the 2012 financial crisis. The average non-performing loan (NPL) ratio has declined to 7.3% as of March 31, 2024, from 11.0% at the end of 2021.
S&P highlighted that the largest banks, representing about 90% of the market, have significantly reduced their NPL ratios to about 3.3%. With the burden of legacy problem assets fading and supportive economic conditions, banks are expected to gradually expand their businesses. Lending growth is projected to average 2.5% over 2024-2027, reversing the trend of loan deleveraging seen in 2023.
