Limassol-based rating agency Capital Intelligence has affirmed Cyprus’ long-term and short-term foreign currency sovereign rating at BB- and B and placed it on ‘positive’ outlook, upgrading from previously ‘stable’ amid risks related to high indebtedness.
The better than expected performance of the island’s economy – which last year is projected to have expanded 3.9 per cent – and public finances, expected to allow “public debt to decline at a faster pace than already envisaged” is behind decision to place the outlook on positive, Capital Intelligence said.
The economy is expected to grow at a rate about 3 per cent this year and in 2019, the rating company said.
Still “risks to the economic outlook remain considerable,” it said, adding that the private debt compared to the economic output stood at 259 per cent which “is extremely large”.
“The banking crisis has restricted the country’s medium-term growth prospects and severely constrained access to credit for local businesses,” Capital Intelligence said.
Capital Intelligence also cited the government’s satisfactory access to finance and the gradually improving conditions in the banking sector in revising the rating’s outlook to positive.
“Bank balance sheets have improved further,” allowing banks to regain depositor confidence five years after the banking crisis, it said. “Total deposits in the banking system were 4 per cent higher in November 2017 compared to November 2016, with resident deposits up by 6.2 per cent, while the non-performing loan ratio was lower at 44.1 per cent in the first half of 2017, compared to 46.4% in 2016.
“Provisioning also improved to 47.1 per cent of non-performing loans in the first six months of 2017, compared to 42.3 per cent in 2016,” it said. “Despite these improvements, the outlook for the banking sector hinges on addressing the still very high level of non-performing loans and on fully implementing certain reforms, especially concerning foreclosure”.