The Central Bank of Cyprus wishes to refer to yesterday's announcement by Moody's international rating agency on the rating of Bank of Cyprus, Cyprus Popular Bank and Hellenic Bank and to observe the following:
1. It is obvious from the announcement of Moody's that the downgrading of the Cyprus banks is not related to their current financial strength and their ability to meet their obligations as they fall due compared to the banks' condition last year, when the Cyprus banks were better rated by Moody's, but is the result, according to Moody's assessment, of the expected weakening of the degree of government support that may be afforded to the banking sector, if and when the need arises, following the accession of Cyprus to the EU, where the rules regarding government support are stricter. This is a highly hypothetical assumption, never experienced in practice, since throughout the history of the Cyprus banking system, there is not even a single case where such government support was needed.
2. It is important to emphasize that the condition of the Cyprus banking system with regard to capital adequacy as well as financial performance is better this year compared to last year. This assessment of the Central Bank of Cyprus has been stated to Moody's representatives in a recent meeting with the Governor of the Bank and was not challenged or doubted by Moody's.
3. With regard to Moody's claim that the expansion of Cyprus banks abroad creates large and increasing obligations in foreign exchange in relation to the foreign currency reserves of the Monetary Authority, the Central Bank wishes to reconfirm that the expansion of Cyprus banks abroad is highly regulated and tightly controlled and that Cyprus banks operating abroad are not expected to face liquidity problems.
4. The Central Bank of Cyprus, in parallel to its reservations regarding the downgrading of the above mentioned banks by Moody's, considers it equally important that this assessment is correctly interpreted, and particularly, to reiterate that this assessment bears no relation to the present condition of Cyprus banks which is steadily improving compared to last year. The Central Bank, standing firm on the measures taken and the directives issued to banks, is optimistic about the future of Cyprus banks.