The increased provisions for bad debts are still a nightmare for the Hellenic Bank. After the decision of the international credit rating agency, Moody’s, to set the Hellenic Bank under observance for possible downgrading, Fitch Ratings, downgraded Hellenic Bank's (HB)ratings to Long-term 'BBB' from 'BBB+' and Short-term F3' from 'F2',following the release of its lower-than-expected 2004 results. At the same time, the bank's other ratings are affirmed at Individual 'C/D' and Support '2'. The Outlook on the Long-term rating is Stable. “The bank's capital base remains reasonable. At the end of December 2004, the bank estimated its Tier 1 ratio to be just over 10%”, Fitch reported.
According to the announcement, “HB reported a net loss of CYP15 million for 2004 due to higher-than-expected loan loss provisions and an increase in its stock of nonperforming loans. The high loan loss provisions were a result of its asset quality problems and the necessary reinforcement of its loan loss reserves owing to new stricter rules for defining non performing loans and interest suspension in Cyprus. HB's asset quality, like its Cypriot peers, is poor by international standards and reflects an economic slowdown in Cyprus over the past three years, while slow courts mean that recovery times remain very slow”.
“'Fitch expects the bank to return to an adequate level of net income over the medium term and for loan loss provisions to absorb a steadily lower proportion of the bank's pre-provision profit. However, in the meantime provisions are likely to remain large and profitability strained”, Fitch Associate Director, Paolo Fioretti stated.
The domestic economy is slowly improving. This together with the collateral backing of its loan book allows the improvement of loan loss reserve coverage (58%). “Fitch would like to see reserves bolstered further”, the announcement said.
“HB's Long-term, Short-term, and Support ratings continue to reflect its important position within the Cypriot financial system and the strong likelihood that support would be forthcoming from the government should it ever be necessary”, Fitch reported.
“HB's revenue generation is improving in Cyprus, thanks to wider interest spreads after a pricing review was started in 2002. In addition, the bank's earnings are benefiting from the growth of its Greek subsidiary. HB's cost-to-income ratio remained high at around
69% at December 2004, which management is taking steps to improve”, the announcement concluded.
HB: We expected Fitch’s downgrading
“Fitch’s decision was anticipated. The largest part of the problematic loans has been covered with the increased provisions. The coverage rates continue to increase and the first quarter results will be different”, a Hellenic Bank high ranking official said.
According to the announcement, “HB reported a net loss of CYP15 million for 2004 due to higher-than-expected loan loss provisions and an increase in its stock of nonperforming loans. The high loan loss provisions were a result of its asset quality problems and the necessary reinforcement of its loan loss reserves owing to new stricter rules for defining non performing loans and interest suspension in Cyprus. HB's asset quality, like its Cypriot peers, is poor by international standards and reflects an economic slowdown in Cyprus over the past three years, while slow courts mean that recovery times remain very slow”.
“'Fitch expects the bank to return to an adequate level of net income over the medium term and for loan loss provisions to absorb a steadily lower proportion of the bank's pre-provision profit. However, in the meantime provisions are likely to remain large and profitability strained”, Fitch Associate Director, Paolo Fioretti stated.
The domestic economy is slowly improving. This together with the collateral backing of its loan book allows the improvement of loan loss reserve coverage (58%). “Fitch would like to see reserves bolstered further”, the announcement said.
“HB's Long-term, Short-term, and Support ratings continue to reflect its important position within the Cypriot financial system and the strong likelihood that support would be forthcoming from the government should it ever be necessary”, Fitch reported.
“HB's revenue generation is improving in Cyprus, thanks to wider interest spreads after a pricing review was started in 2002. In addition, the bank's earnings are benefiting from the growth of its Greek subsidiary. HB's cost-to-income ratio remained high at around
69% at December 2004, which management is taking steps to improve”, the announcement concluded.
HB: We expected Fitch’s downgrading
“Fitch’s decision was anticipated. The largest part of the problematic loans has been covered with the increased provisions. The coverage rates continue to increase and the first quarter results will be different”, a Hellenic Bank high ranking official said.
3287.99
1275.09
