Fitch Ratings has upgraded Bank of Cyprus' (BoC) Long-Term Issuer Default Rating (IDR) to 'BBB' from 'BBB-' and Viability Rating (VR) to 'bbb' from 'bbb-'. The Outlook on the Long-Term IDR, it added, is Stable.
"The upgrade reflects the improvement of the Cypriot operating environment score to 'bbb', which reflects our assessment of improved business and financial prospects for Cypriot banks due to continued economic growth and falling unemployment and private sector indebtedness," the international rating agency explained. "The upgrade also factors in continued improvements in BoC's standalone credit profile from a further reduced stock of legacy problem assets, sound profitability prospects and satisfactory capital buffers."
Key rating drivers
Franchise, Risk Profile Underpin Ratings: BoC's ratings reflect its strong competitive position as one of the leading domestic banks in the small Cypriot market. Its ratings are also underpinned by stable deposit funding, sound profitability, satisfactory capitalisation and improved asset quality.
Improved Operating Environment: We expect continued growth of the Cypriot economy, coupled with low unemployment and good evolution in key sectors, to support business opportunities for banks, resilient asset quality and sustainably sound profitability.
Strong Domestic Franchise: BoC is one of the leading banks in Cyprus, with a business model centred on traditional retail and commercial banking, with some diversification in insurance and payments. The reduced stock of legacy problem assets, which comprises impaired loans (Stage 3 loans and non-performing purchased or originated credit impaired loans) and net foreclosed real estate assets, and strong profitability support the long-term stability of its business profile. Business prospects should benefit from continued economic growth in Cyprus and the bank's plans to develop wealth management, insurance and other fee-generating activities.
Improved Asset Quality: BoC's asset quality has improved faster than we expected, with the impaired loans ratio reducing to 1.2% (pro forma for pending impaired loan transactions) and problem asset ratio to about 5% at end-September 2025. We expect the bank's asset quality to improve further, supported by a benign operating environment in Cyprus, adequate underwriting standards, and additional disposals of foreclosed assets. Our assessment of BoC's asset quality also reflects that almost half of the bank's assets are cash holdings and high-quality debt securities, which are significantly lower risk than the loan book.
Profitability to Remain Adequate: BoC's profitability was strong in 9M25, with an operating profit/risk-weighted assets (RWA) ratio of 5.3%, underpinned by a strong net interest income and lower effect from impairments on legacy problem assets. We expect the ratio to reduce over the next two years due to lower interest rates, but to remain above 4%. BoC's profitability will continue to benefit from a supportive economic environment, further development of the fee-generating business and good cost efficiency.
Large Capital Buffers; Falling Encumbrance: BoC's common equity Tier 1 (CET1) ratio of 20.5% at end-September 2025 (including the full 9M25 net profit less dividend accrual) had satisfactory buffers over regulatory requirements, and we expect it to remain close to current levels over the next two years. Encumbrance of CET1 capital by net problem assets has declined to just below 20% at end-September 2025 (pro forma for pending impaired loan transactions) on lower impaired loans and further disposals of foreclosed properties, reducing capital sensitivity to historical asset-quality shortcomings.
Stable Deposit Base: BoC's funding is supported by a strong deposit franchise in Cyprus. Liquidity buffers are consistently strong as deposits are well in excess of loans. Most of the deposits (61%) are from retail clients and 54% are covered by the deposit guarantee scheme, contributing to funding stability. The bank has demonstrated access to wholesale funding markets by issuing debt eligible for its minimum requirement for own funds and eligible liabilities (MREL) and is compliant with its final MREL.
Read the full report here.
(Source: FitchRatings)
