DEPOSITS will continue to flow into Cyprus’ banking system defying recent cuts in the credit rating of lenders operating on the island, bankers say.
“Even after recent rating cuts, our clientele continues to show trust in our organisation, as is demonstrated by the continuous increase in deposits,” Louis Pochanis, senior manager of international banking services at the Bank of Cyprus, told the Sunday Mail in an interview.
Clients pay less attention to ratings and “more attention to our profitability, capital adequacy level and liquidity which were maintained throughout the global financial crisis and the Greek debt crisis at impressively high levels even compared to other banks internationally,” Pochanis added.
Deposits in Cyprus’ banks rose in April 13.6 per cent to 70.8 billion euros compared to April 2010, a record high, according to the Central Bank. It was the first increase in deposits this year which fell for three consecutive months, after peaking at 69.9 billion euros in December.
The increase in overall deposits was mainly from clients based outside Cyprus, primarily Russians and eastern Europeans. They have increased their deposits by more than 5.5 billion euros to 26.3 billion euros since April 2010, according to the Central Bank. By contrast, Cyprus residents increased their deposits by three billion euros.
By April, Bank of Cyprus’ deposits had risen by nearly 30 per cent over the past year to 20.6 billion euros, according to the central bank.
The behavior of foreign clients at banks in Cyprus is only partially affected by the Greek debt crisis, Yiannis Tirkides, head of economic research at Marfin Popular Bank said.
“Factors that influence or determine the flow of foreign capital to Cyprus are numerous and deeper,” he said. “A scenario involving a Greek haircut may affect the deposit inflows but only to a certain degree given the high capitalisation ratio of Marfin Popular Bank or the Cypriot banks in general.”
Moody’s Investor Services downgraded Cypriot banks in March citing their exposure to Greece. The rating agency cut Greece’s sovereign credit rating to Caa1 on Wednesday saying that the nation’s probability to default was 50 per cent. On the same day, Fitch Ratings said it will review Bank of Cyprus’ BBB+ rating for a possible downgrade and cut Marfin Popular Bank one notch to BBB-. It affirmed Hellenic Bank’s BBB- rating.
“It will take something much more than a Greek haircut to bring the inflows to a hold,” Tirkides added.
Marfin Popular Bank’s deposits rose 2.4 per cent to 12.7 billion euros in April compared to a year before, according to the central bank.
The bulk of deposits belonging to non-Cypriot depositors, “is made out of deposits belonging to clients such as holding companies, trading companies or real estate enterprises,” Bank of Cyprus’ Pochanis said.
As the share of deposits belonging to investment firms in overall deposits of the international business “is very small”, the downgrading of Cypriot banks had little effect on overall deposit levels, he said.
Investment companies shifted funds from downgraded Cypriot lenders to banks abroad in an attempt to maintain their capital adequacy ratio.
