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Moody's Upgrades Hellenic Bank's Long-Term Deposits

Moody's Upgrades Hellenic Bank's Long-Term Deposits

Moody’s Investors Service has upgraded Hellenic Bank Public Company Ltd’s long-term deposit rating to Caa2 from Caa3, due to the bank’s large volume of deposits, and has further affirmed the bank’s caa3 baseline credit assessment (BCA).

According to the international credit rating agency, the affirmation of Hellenic’s caa3 BCA takes into account Moody’s assessment of a Very Weak macro profile for Cyprus, driven primarily by the country’s weak funding conditions, brought about by still fragile depositor confidence. 

Credit conditions also remain very weak, with private-sector debt standing at 300% of GDP, with over a third of it built up over the last four years, its report continued to explain.

The macro profile also captures the rating agency’s expectations of a mild economic recovery in 2015, and progressive GDP growth rising to around 2% over the medium term, although the outlook remains vulnerable to private-sector deleveraging and a high stock of problem loans.

Moody’s affirmation of Hellenic Bank’s caa3 BCA also reflects the bank’s weak financial profile, capturing Hellenic’s significant asset-quality challenges which offset its enhanced capital base and ample liquidity buffers. The bank continues to face a large stock of non-performing loans (NPLs) against which cash provisions (loan loss reserves) remain low. 

According to the rating agency, the recent implementation of a more timely foreclosure framework in Cyprus is a positive development for the bank, however it is too early to assess its potential benefit.

Moody’s does, however, acknowledge the bank’s solid liquidity cushion and stronger capital. As of March 2015, cash and placements with banks accounted for 44% of total assets, and including bond investments this ratio increases to 56%.

“This high liquidity buffer mitigates the risks that arise from the high vulnerability of the bank’s funding base, and would allow the bank to withstand large deposit outflows”, it stressed.

Hellenic Bank’s financial profile also benefits from its strengthened capital buffers. Following a successful capital increase completed in December 2014, the bank`s Common Equity Tier 1 Ratio increased to 13.3% against a 7.3% Core Tier 1 capital ratio at end-2013, and its Tier 1 capital ratio, which also reflects around EUR130 million of high-trigger capital securities, increased to 16.2% as of March 2015.

The upgrade of the bank’s deposit ratings to Caa2 from Caa3 takes into account the LGF analysis of the bank’s own volume of deposits and securities subordinated to them in Moody’s creditor hierarchy. 

Hellenic Bank benefits from a large volume of deposits (accounting for 21% of tangible assets), resulting in a low loss given failure.

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