Credit rating agency Moody’s Investors Service yesterday downgraded the following ratings of Bank of Cyprus (BOC): The long-term foreign currency debt and deposit ratings to Baa1 from A3; the foreign currency subordinated debt ratings to Baa2 from Baa1; and the Financial Strength Rating (FSR) to D+ from C-. At the same time, Moody’s has affirmed BOC’s Prime-2 short-term deposit rating. All ratings carry stable outlooks. In a statement issued in London, Moody’s notes that in the past 18 months BOC has experienced a significant increase in problematic loans and that stringent loan classification criteria effective January 2005, coupled with lukewarm economic conditions in the Cypriot economy, suggest that asset quality and bottom-line profitability could remain under pressure in the coming year, due to high provisioning requirements. Moody’s views BOC’s expansion in Greece favorably, as it allows the bank to diversify its revenues and risks away from the challenging operating environment in Cyprus. Nevertheless, the rapid pace of such expansion, taken together with the weak internal capital-generating performance of the group’s operations in Cyprus in the past two years, led to a decline in the bank’s overall equity position. Furthermore, the bank’s economic capital is weakened further by sizable uncovered pension liabilities. Although Moody’s views positively the fact that Bank of Cyprus reported significantly improved profits for the first half of 2004, the rating agency feels that the bank’s key indicators of profitability, asset quality and capitalization, coupled with the challenges that it faces going forward, are more in line with financial institutions rated D+ for financial strength. The Bank of Cyprus had total assets of 9.1 billion Cyprus pounds (15.5 billion euros) as of December 31, 2003.