STOCKS gained close to 4.5 per cent yesterday, the second significant consecutive rise as banks continued to recoup recent heavy losses.
The general index closed at 1,700 points following a session that opened in the black and rose steadily until closing time.
Laiki rose six cents to €2.80 and Hellenic went up seven cents to €1.57.
Bank of Cyprus (BoC) gained another 26 cents, after adding back 24 cents on Monday on news that it had finalised its deal to buy 80 per cent of Russia’s Uniastrum Bank. The share ended at €4.56 yesterday.
International credit rating firm Fitch yesterday downgraded BoC’s Long-term Issuer Default rating (IDR) to ‘BBB+’ from ‘A-‘ and removed it from Rating Watch Negative (RWN).
This also followed the announcement of the Russia deal, which Fitch said it had some qualms with.
“The downgrade reflects BoC’s fast growth strategy in recent years, including its acquisition of UB. This has led to a changing risk profile and tighter capitalisation at a time when the operating environment is deteriorating as a result of the continued dislocation in global financial markets”, Fitch said.
“In Fitch’s opinion, the recent acquisition of UB has an adverse impact on the group’s risk profile. The agency views the pricing and timing of the acquisition as unfavourable, after the severe deterioration in the Russian capital markets has impacted the value and prospects of UB.”
Fitch said that although UB broke even in the first half of 2008, improving its profitability remained a challenge for BoC’s management given the Russian bank’s heavy cost due to its large branch network and staff numbers.
Fitch said it would expect BoC to support its 80 per cent-owned subsidiary, in turn putting funding pressure on the group.
“Nevertheless, BoC benefits from its large deposit base, of which two-thirds are denominated in euro,” it added.
Fitch also said it recognised BoC’s large market shares in its home market, strong cost efficiency and profitability, good funding and the improving asset quality of its Cypriot loan book as a result of the bank’s enhanced risk management.
It said the banks’ improved risk management systems and good profitability should help the group absorb some deterioration in asset quality and increased funding and liquidity costs.
“However, the bank will be challenged to manage arrears and profitability in light of a riskier loan portfolio and tighter capitalisation and a more difficult operating environment,” added Andrea Jaehne from Fitch’s Financial Institutions team in London.
Fitch also said BoC’s expansion to Ukraine and Romania had seen strong loan growth in the past five years. These institutions were also expected to “suffer proportionally more” from a global economic downturn than its peers in developed markets, it added.
BoC will announce its nine-month results tomorrow.
