Cyprus News Agency: News in English, 11-11-08

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From: The Cyprus News Agency at <http://www.cyna.org.cy>

CONTENTS

[01] MOODYS DOWNGRADES THREE BANKS

[02] INFLATION UP OCTOBER

[03] HOUSE PRESIDENT EPP LEADER

[04] CYPRUS WORLD TRAVEL MARKET

[01] MOODYS DOWNGRADES THREE BANKS

Particularly, Moody`s downgraded Marfin Popular Bank by three notches to B2 from Ba2 and Bank of Cyprus and Hellenic Bank by one notch to Ba2 from Ba1.

Moody`s has also placed the ratings of the three banks on review for further downgrade.

According to a press release issued by Moodys, these actions follow Moody`s downgrade on 4 November of the Cypriot government bond rating by two notches to Baa3 (on review for possible further downgrade) from Baa1.

The primary driver underlying the rating downgrades of these three banks is the reduced ability of the country to support its large banking system, which has an asset base (domestically owned assets) equivalent to 6x the country`s GDP.

Moody`s reassessment of the sovereign capacity to support the banking system reflects a weakening in the strength of the country`s balance sheet, as indicated by the two-notch downgrade of Cyprus`s government bond ratings to Baa3 from Baa1 on 4 November. Moody`s multi-notch downgrade of Marfin reflects a weakening of the banks` standalone credit strength, in addition to the above-mentioned reduction in the country`s capacity to provide support.

Compared to its peers, Marfin`s higher exposures to Greek government bonds (GGBs), at around 91% of Tier 1 capital, render it particularly vulnerable to losses under the revised deal on greater private-sector involvement (PSI) announced on 27 October.

This would imply a haircut of 50%, and thereby more than double the losses contemplated under the initial 21 July PSI deal.

After accounting for this 50% haircut on GGB holdings, losses already taken and tax benefits, Moody`s estimates that Marfin would require capital of more than EUR1 billion to meet the central bank`s minimum Core Tier 1 capital requirement of 8% and conform with the European Banking Authority`s 9% minimum Core Tier 1.

While the bank is exploring various options to address this gap, given the current difficult market conditions, the task of raising such a substantial amount of capital (equivalent to around 5% of Cypriot GDP) by June 2012 significantly increases the likelihood that the bank will require a large capital injection from the government.

Based on Moody`s analysis, the other two rated banks could cover the capital shortfall triggered by the currently proposed GGB impairments without any external assistance.

Whilst the Bank of Cyprus`s exposures to GGBs, at 53% of Tier 1, imply material impairment losses, its ability to replenish core capital is supported by EUR887 million worth of Convertible Enhanced Capital Securities (CECS) that can be converted into Core Tier 1 capital. Hellenic`s exposures to GGBs at 18% of Tier 1 are considered moderate.

Moody`s notes, however, that further haircuts to GGB holdings, beyond the recently accounted 50%, cannot be ruled out in the future, which would exert additional pressure on the banks.

[02] INFLATION UP OCTOBER

According to the Statistical Service of the Republic of Cyprus, the Harmonized Index of Consumer Prices reached 3,4% for the first ten months of 2011, compared to 2,7% in the same period of 2010.

[03] HOUSE PRESIDENT EPP LEADER

Daul made the statement after a meeting with President of the House of Representatives Yiannakis Omirou who is currently holding contacts in Brussels.

Omirou said the House looks forward to cooperating with the EPP during the Cyprus-EU presidency.

Daul said that the EPP plans to visit Cyprus in May, as part of the routine visit which the EPP pays to countries undertaking the EU presidency.

The French EPP chairman said that during their meeting, they discussed preparations in view of the Cypriot presidency, which will be an important presidency since it will deal with the important matter of the EUs multi-year fiscal framework.

Speaking through an interpreter, Daul said he believes Cyprus, which is a small country, has more opportunities to solve difficult problems, compared to a large country.

[04] CYPRUS WORLD TRAVEL MARKET

Addressing a dinner in a central London hotel, hosted by the CTO, in the framework of her contacts at the British capital where she is attending the World Travel Market, Antoniadou referred to the advantages of Cyprus as a tourist destination, the infrastructure projects underway such as marinas, golf courses and the historic and cultural interests which the island offers.

Both Antoniadou and Orountiotis assured that Cyprus will do everything possible to maintain and strengthen its share of the tourist market in the UK.

In his address, Orountiotis described the British market as the most significant for Cyprus. We are determined to do all we can to maintain our share from this market. 2011 is a very good year for Cyprus tourism with arrivals increasing by 11% compared to 2010, he added.

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