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Moody`s Investors` Service has upgraded Bank of Cyprus Public Company Limited`s (BoC`s) long-term local and foreign currency deposit ratings to Caa1 from Caa2 and its Provisional Senior Unsecured EMTN ratings to (P)Caa1. 

The bank`s Not Prime short-term ratings have been affirmed. The rating action is driven by the upgrade of BoC`s Baseline Credit Assessment (BCA) to caa1 from caa2. The outlook on the long-term deposit ratings remains positive. 

The upgrade of BoC`s ratings reflects the improvement in the bank`s financial fundamentals- mainly profitability, asset quality, capitalization and its funding position. Moody`s expects BoC to remain modestly profitable in 2017, following its return to profitable performance in 2016 after five years of losses. The rating agency also expects further improvement in the bank`s asset quality metrics as ongoing loan work-outs and collateral sales are supported by the strong economic recovery. 

The positive outlook reflects Moody`s expectations of changes over the next 12 to 18 months in the bank`s liability structure, mainly the issuance of debt. 

The positive outlook reflects Moody`s expectations of changes in the bank`s liability structure. An increased cushion to depositors against potential losses, such as through an issuance of EUR500 million of senior debt, would result in one notch uplift in the bank`s deposit ratings. 

Upward pressure could develop on the ratings following further improvements in BoC`s financial performance, mainly a further reduction in the volume of NPLs and/or improvement in the coverage ratio. A change in the bank`s liabilities` waterfall through the issuance of senior or additional subordinated debt may also positively affect its deposit ratings. 

The outlook could stabilize if the bank`s progress with loan restructurings stagnates or if economic growth falters leading to a reversal in the recent improvement to the bank`s asset quality metrics. The outlook may also stabilize if the changes Moody`s expects in the bank`s liability structure do not materialize. 

Although not currently anticipated given the positive outlook, BoC`s ratings may be downgraded if the bank`s financial fundamentals, mainly asset quality, and capital weaken, while at the same time the changes Moody`s expects in the bank`s liability structure do not materialize.

Source: Stockwatch