FOLLOWING the downgrade of Cyprus’ sovereign rating on January 25, Fitch Ratings late on Thursday downgraded Bank of Cyprus' (BOC), Cyprus
Popular Bank's (CPB) and Hellenic Bank's (HB) Long-term Issuer Default Ratings (IDRS) and Support Rating Floors (SRFS) to 'B' from 'BB-.
The Outlooks on the banks' Long-term IDRs were negative in line with that of the sovereign, Fitch said.
The agency Fitch affirmed all three banks' Short-term IDRs at 'B'.
Fitch said the sovereign downgrade indicated a weakening of its ability to provide extraordinary support to its banks.
In the near term, lingering uncertainty exists over the timing and details of an official financing programme for Cyprus, including in respect of banking sector recapitalisation costs, the agency said. “However, Fitch expects such a programme will be agreed before June 3, and that it will provide financing for the recapitalisation
of the banking system,” it said.
Fitch said it expected the recapitalisation cost to be up to €10bn, “although Fitch anticipates that this figure may include a degree of headroom.”
The Negative Outlooks indicate that any further downgrade of Cyprus's sovereign rating would be likely to lead to a further downgrade of the banks' long-term IDRs, senior debt ratings and SRFs.
“In addition, any development that reduced the likelihood of international support for bank senior creditors would be likely to lead to a further downgrade of these ratings,” Fitch said.