Fitch Ratings has upgraded the viability of Bank of Cyprus and Hellenic Bank to 'cc' and 'ccc' respectively from 'f' -- a development that was hailed Thursday by the Cypriot authorities as a "promising move".
Fitch's move was the first upgrade for the Cypriot banking system after Bank of Cyprus underwent a resolution last year and the eastern Mediterranean island's second largest lender failed and was wound down.
Bank of Cyrpus posted a 2.04 billion euros (2.83 billion U.S. dollars) loss for 2013 that was however considered to be a sign of stabilization.
Fitch said its review of the two banks was based on their standalone creditworthiness after the completion of their recapitalization and public details of Bank of Cyprus' restructuring plan, which it said were key milestones in restoring their solvency.
The bank's world-first bail in was part of a 10-billion euro bailout package accorded to Cyprus in March, 2013.
Fitch said the viability ratings continue to reflect Fitch's view that failure risk is high in light of the challenges the banks and the country face, notably continued asset quality and capital pressures as well as restoring fragile consumer confidence.
Cypriot authorities have said they expected all bank restrictions to be lifted by the end of this year.
A statement by the Cypriot government spokesman hailed the upgrading of the banks adding that "it was the result of a successful implementation of the bailout assistance programme, which has put an end to a continuous downgrading of the Cyprus' economy".
"It reflects the Government's determination to maintain a responsible approach in order for the economy to return to the international markets and growth", the statement said.