International credit rating agency Fitch Ratings upgraded Hellenic Bank’s long-term credit rating from “BB-“ to “BB+” on Friday.
At the same time, the agency also set the bank’s outlook as “stable” and upgraded its viability rating from “BB-“ to “BB+”.
They said the upgrade “reflects the combination of the improved assessment of the Cypriot operating environment and the continued improvement of Hellenic Bank’s credit profile.”
The operating environment, they said, entails expectations of “continued domestic economic growth, improved banking fundamentals, and a reduction, albeit still above average, in private sector debt” in Cyprus.
In addition, they said the upgrade is a reflection of the reduced stock of legacy distressed assets, including foreclosed properties, and “structurally improved profitability”.
They added that the rating “reflects [Hellenic Bank’s] strong competitive position as the second largest bank in the small Cypriot market.”
Regarding limiting factors for the bank’s credit rating, they said Hellenic Bank’s business profile “is characterised by traditional commercial banking activities, with limited differentiation in fees generated by banking activities and insurance operations.”
They also pointed out that the bank “operates almost exclusively within the domestic market with strong market shares, especially among households,” and that with this in mind, “growth opportunities are limited, given Cyprus’ small size and private sector debt which is still above the global average.”
They warned they could downgrade the bank if Cyprus’ economic environment “sharply deteriorates”.
Further upgrades to the bank’s rating, they said, “depend on improvements of the operating environment in Cyprus, which would require an upgrade of the Cypriot government’s long-term creditworthiness and an expectation of continued economic growth in Cyprus.”
“These improvements would likely translate into better business opportunities for domestic banks, reduced credit risk from the banks’ exposure to the state, and improved market access amid greater confidence among investors,” they added.