Moody’s upgraded Bank of Cyprus covered bonds backed by Cypriot collateral from Caa1 to B3 yesterday (Tuesday) after having on Monday upgraded from Ca to Caa3 the issuer’s deposit rating, with a provisional senior unsecured programme having been similarly upgraded.

The rating agency cited a strengthening of Bank of Cyprus’s capital buffers as well as a reduction in the bank’s reliance in central bank funding.

“Despite the upgrade, the bank’s ratings continue to be positioned at the lower end of Moody’s rating scale,” it said, “reflecting the immense challenges the bank still faces, mainly in terms of addressing very high volumes of non-performing loans.”

The outlook on the deposit and senior unsecured ratings is stable.

The covered bond anchor for the covered bond programme is the issuer’s senior unsecured rating plus zero notches, and the Timely Payment Indicator (TPI) is “very improbable”. Moody’s noted that the programme has “limited” TPI Leeway.