Moody’s Investors Service has upgraded Bank of Cyprus’ and Hellenic Bank’s long-term deposit ratings to Baa3 from Ba1, citing the continued resilience of the Cypriot economy and credit conditions, which are leading to supportive operating conditions for Cypriot banks.

Last Friday, Moody’s has upgraded Cyprus’ long term credit rating by two notches to Baa2 from Ba1 leading the island’s rating to investment-grade category. The agency also maintained a positive outlook for both banks.

“The main driver for today's rating upgrade is the continued resilience of the Cypriot economy and credit conditions, which are leading to supportive operating conditions for Cypriot banks,” the agency said in a press release.

The agency added that the rating action “also captures the continued improvements in Cypriot banks' individual solvency profiles, with further gradual improvements in asset quality and capital metrics, and a significant strengthening in banks' core profitability.”

According to Moody’s the positive outlooks reflect Moody's expectations that the two banks will maintain solid profitability and capital metrics, and will continue to reduce legacy asset quality risks, countering any new nonperforming loans (NPL) that may stem from the higher interest rate environment and still-high inflation.

On Bank of Cyprus, Moody’s inter alia, cited the higher ratings also reflect continued gradual improvements in asset quality and capital metrics, and a significant strengthening in the bank's core profitability, the decline of nonperforming exposures (NPEs) to 3.6% of gross loans as of June 2023, from 4.0% as of December 2022, and the bank’s strengthened its coverage to 78% of NPEs as of June 2023.

It also noted that Bank of Cyprus reported a Common Equity Tier 1 (CET1) capital ratio of 16.0% as of June 2023, which incorporates dividend accruals and the reviewed results for the first half of 2023, up from 15.2% as of year-end 2022, the highest level in recent years.

On Hellenic Bank, highlighted the continued gradual improvements in asset quality and capital metrics, and a significant strengthening in the bank's core profitability, while its NPEs dropped to 3.3% of gross loans as of June 2023, excluding NPEs that are 90% guaranteed by the government, from 3.6% as at year-end 2022, adjusted for its latest NPE sale.

The agency further noted that Hellenic Bank's CET1 ratio was at a high 20.8% as of June 2023, up from 19.1% as of year-end 2022, while net income to tangible assets also strengthened significantly to 1.6% during the first six months of 2023, from 0.4% during 2022, supported by the higher interest rate environment and the bank's cost cutting initiatives.