Fitch Ratings has upgraded Bank of Cyprus Public Company Limited’s (BoC) Long-Term Issuer Default Rating (IDR) to ‘BBB’ from ‘BBB-‘ and Viability Rating (VR) to ‘bbb’ from ‘bbb-‘. The Outlook on the Long-Term IDR is Stable. A full list of rating actions is below.
The upgrade reflects the improvement of the Cypriot operating environment score to ‘bbb’, which reflects our assessment of improved business and financial prospects for Cypriot banks due to continued economic growth and falling unemployment and private sector indebtedness. The upgrade also factors in continued improvements in BoC’s standalone credit profile from a further reduced stock of legacy problem assets, sound profitability prospects and satisfactory capital buffers.
Key Rating Drivers
Franchise, Risk Profile Underpin Ratings: BoC’s ratings reflect its strong competitive position as one of the leading domestic banks in the small Cypriot market. Its ratings are also underpinned by stable deposit funding, sound profitability, satisfactory capitalisation and improved asset quality.
Improved Operating Environment: We expect continued growth of the Cypriot economy, coupled with low unemployment and good evolution in key sectors, to support business opportunities for banks, resilient asset quality and sustainably sound profitability.
Strong Domestic Franchise: BoC is one of the leading banks in Cyprus, with a business model centred on traditional retail and commercial banking, with some diversification in insurance and payments. The reduced stock of legacy problem assets, which comprises impaired loans (Stage 3 loans and non-performing purchased or originated credit impaired loans) and net foreclosed real estate assets, and strong profitability support the long-term stability of its business profile. Business prospects should benefit from continued economic growth in Cyprus and the bank’s plans to develop wealth management, insurance and other fee-generating activities.
Improved Asset Quality: BoC’s asset quality has improved faster than we expected, with the impaired loans ratio reducing to 1.2% (pro forma for pending impaired loan transactions) and problem asset ratio to about 5% at end-September 2025. We expect the bank’s asset quality to improve further, supported by a benign operating environment in Cyprus, adequate underwriting standards, and additional disposals of foreclosed assets. Our assessment of BoC’s asset quality also reflects that almost half of the bank’s assets are cash holdings and high-quality debt securities, which are significantly lower risk than the loan book.
Profitability to Remain Adequate: BoC’s profitability was strong in 9M25, with an operating profit/risk-weighted assets (RWA) ratio of 5.3%, underpinned by a strong net interest income and lower effect from impairments on legacy problem assets. We expect the ratio to reduce over the next two years due to lower interest rates, but to remain above 4%. BoC’s profitability will continue to benefit from a supportive economic environment, further development of the fee-generating business and good cost efficiency.
Large Capital Buffers; Falling Encumbrance: BoC’s common equity Tier 1 (CET1) ratio of 20.5% at end-September 2025 (including the full 9M25 net profit less dividend accrual) had satisfactory buffers over regulatory requirements, and we expect it to remain close to current levels over the next two years. Encumbrance of CET1 capital by net problem assets has declined to just below 20% at end-September 2025 (pro forma for pending impaired loan transactions) on lower impaired loans and further disposals of foreclosed properties, reducing capital sensitivity to historical asset-quality shortcomings.
Stable Deposit Base: BoC’s funding is supported by a strong deposit franchise in Cyprus. Liquidity buffers are consistently strong as deposits are well in excess of loans. Most of the deposits (61%) are from retail clients and 54% are covered by the deposit guarantee scheme, contributing to funding stability. The bank has demonstrated access to wholesale funding markets by issuing debt eligible for its minimum requirement for own funds and eligible liabilities (MREL) and is compliant with its final MREL.
Rating Sensitivities Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
BoC’s ratings are sensitive to a significant weakening of the economic environment in Cyprus. This could be due to much slower economic growth than our forecasts, which leads to deteriorating asset quality, earnings or business opportunities for banks.
We could also downgrade the ratings if we expected the impaired loan ratio to rise above 4% for a prolonged period and the CET1 ratio to fall below 15%, causing CET1 capital encumbrance by unreserved problem assets to rise significantly. A material decline of the operating profit/RWAs ratio below 2.5% due to structural weaknesses in the bank’s business model, evidence of funding instability, could also be rating negative.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
BoC’s rating upside is limited due to our assessment of the operating environment score of ‘bbb’, which is constrained by the small size and structure of the Cypriot economy. An improvement of the operating environment assessment would require Cyprus’s economy to significantly increase, supporting banks’ ability to continue growing and improving risk diversification.
An upgrade of the IDRs would also require BoC’s CET1 ratio to remain around 20%, an impaired loan ratio structurally below 2% and an operating profit structurally above 3.5% of RWAs through the interest rate cycle, supported by larger and more diversified revenue. In addition, an upgrade would require stable funding and solid risk governance.
An upgrade of the Short-Term IDR could also derive from an improved assessment of BoC’s funding and liquidity score.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
SHORT-TERM IDR
The Short-Term IDR is ‘F3’, which is the lower of two possible ratings for a ‘BBB’ Long-Term IDR under Fitch’s rating correspondence table, as the funding and liquidity score is not high enough to assign the higher option.
DEPOSITS
We have upgraded the long-term deposit rating to ‘BBB+’ from ‘BBB’, one notch above the Long-Term IDR. This is because of the full depositor preference in Cyprus and our expectation that BoC will continue to comply with its MREL, and therefore that deposits will benefit from the protection offered by more junior bank resolution debt and equity.
We have upgraded the short-term deposit rating to ‘F2’, the lower of two possible ratings for a ‘BBB+’ long-term deposit rating under Fitch’s rating correspondence table, as BoC’s funding and liquidity score is not high enough to assign the higher option.
GOVERNMENT SUPPORT RATING (GSR)
BoC’s GSR of ‘no support’ (ns) reflects Fitch’s view that although extraordinary sovereign support is possible, it cannot be relied upon. The EU’s Bank Recovery and Resolution Directive and the Single Resolution Mechanism for eurozone banks provide a framework for resolving banks that requires senior creditors participating in losses, if necessary, instead of or ahead of a bank receiving sovereign support. Therefore, senior creditors cannot expect to receive full extraordinary support from the government if the bank becomes non-viable.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
DEPOSITS
The long-term deposit rating is primarily sensitive to changes in the bank’s Long-Term IDR.
The short-term deposit rating is primarily sensitive to changes in the bank’s long-term deposit ratings and its funding and liquidity score.
GSR
An upgrade of the GSR would be contingent on a positive change in the sovereign’s propensity to support the bank. In Fitch’s view, this is highly unlikely, although not impossible.
VR ADJUSTMENTS
The operating environment score of ‘bbb’ is below the ‘a’ implied category score due to the following adjustment reasons: size and structure of economy (negative).
The business profile score of ‘bbb’ is above the ‘bb’ implied category score due to the following adjustment reason: market position (positive)
The asset quality score of ‘bbb-‘ is above the ‘bb’ implied category score due to the following adjustment reason: historical and future metrics (positive)
The capitalisation and leverage score of ‘bbb’ is below the ‘a’ implied category score, due to the following adjustment reason: risk profile and business model (negative)
The funding and liquidity score of ‘bbb’ is below the ‘a’ implied category score, due to the following adjustment reason: non-deposit funding (negative).
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. ESG Considerations
The highest level of ESG credit relevance is a score of ‘3’, unless otherwise disclosed in this section. A score of ‘3’ means ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch’s ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch’s ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
Bank of Cyprus Public Company Limited; Long Term Issuer Default Rating; Upgrade; BBB; Rating Outlook Stable
; Short Term Issuer Default Rating; Affirmed; F3
; Viability Rating; Upgrade; bbb
; Government Support Rating; Affirmed; ns
—-long-term deposits; Long Term Rating; Upgrade; BBB+
—-short-term deposits; Short Term Rating; Upgrade; F2
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