MOSCOW, March 26 (RIA Novosti) – Fitch Ratings has downgraded the ratings of Cyprus’ two largest banks to default levels after the Eurogroup struck a bailout deal with the Cypriot authorities as a precondition for Cyprus to receive much-needed aid, the international rating agency said on Tuesday.
“Fitch has downgraded the Long- and Short-Term Issuer Default Ratings (IDRs) of Cyprus Popular Bank (CPB) to 'Default' (D) and those of Bank of Cyprus (BOC) to 'Restricted Default' (RD) from 'B,' respectively, on losses imposed on senior creditors,’ Fitch said in a statement.
The fact that the BOC will continue to operate in Cyprus, while the CPB will be dismantled, explains the difference in their Long-term IDRs ('RD' for BOC; 'D' for CPB), the statement said.
Under the new deal, Popular Bank, the island nation’s second biggest lender, will be split into a good bank and a bad bank. The good bank’s insured deposits of less than €100,000 and its performing assets will be moved into the Bank of Cyprus. The bad bank will largely comprise non-performing assets and uninsured deposits of €100,000 and above.
“The agency expects sizable losses to be imposed on the bad bank's liabilities,” Fitch said, adding that it expected the bad bank to be liquidated over time.
According to Fitch, the "RD" ratings for the Bank of Cyprus indicate the lender has experienced an uncured payment default on a bond, loan or other material obligation but it "has not entered into liquidation or ceased operating, which is the case for BOC.”
The original bailout scheme that was proposed last week and caused outrage in Cyprus envisaged a one-off levy of 6.75 percent on deposits of less than €100,000 and of 9.9 percent on larger deposits, which would yield some €5.8 billion ($7.5 billion) in revenues for the Cypriot budget and unlock the much-needed rescue package of €10 billion ($13 billion) from the European Union, the European Central Bank and the International Monetary Fund.
The new deal is expected to yield some €4.2 billion and allow Cyprus, which is currently teetering on the brink of default, to obtain financial aid from the three international lenders.