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Moodys Investors Service has upgraded Bank of Cyprus’ (BoC) long-term deposit ratings to Caa3 from Ca with stable outlook and the provisional senior unsecured programme rating to (P)Caa3 from (P)Ca, “to reflect the bank’s strengthened capital buffers as well as the reduction, to some extent, of its reliance on central bank funding”. Moody’s also said it has adjusted upwards its standalone baseline credit assessment (BCA) to caa3 from ca.

“Despite the upgrade, the bank’s ratings continue to be positioned at the lower end of Moody’s rating scale, reflecting the immense challenges the bank still faces, mainly in terms of addressing very high volumes of non-performing loans” it said. It noted that “the upgrade primarily reflects the improvement in the bank’s capital buffers, which enhance its capacity to absorb credit related losses”.

“Upward pressure could develop on the ratings following further improvements in BoC’s financial performance, such as a reduction in NPLs and a material decrease in central bank funding, combined with the elimination of existing capital controls” said Moody’s.

On the other hand, downward pressure on BoC’s ratings would develop following deterioration in the bank’s asset-quality metrics beyond Moody’s current expectations, which would significantly erode capital buffers bringing them close to the regulatory minimum; and/or increased reliance on Euro-system funding, the rating agency explained. The Bank of Cyprus will hold its Annual General Meeting on Thursday to elect a new board of directors, following a recent €1.0 billion capital raise, the biggest foreign direct investment in the island’s history.

Cyprus’ largest lender, has been recapitalised with depositor money, as part of the €10 billion bailout Cyprus received from the EU/IMF, under which 47.5% of deposits over €100,000 have been converted to shares.