Cyprus Finance Minister expects 4.5% growth in 2021; unemployment to decline – InvestCyprus summit shows banking progress (Updated)

Cyprus Finance Minister Constantinos Petrides said on Thursday that the island’s economy should rebound with 4.5 per cent growth, while unemployment should decline.

Speaking at InvestCyprus’s 5th Cyprus International Investors Summit, Petridis admitted that forecasts of this type were subject to the uncertainty of the pandemic crisis, but he pointed out that there was good reason to expect that the current economy, which is suffering a 5 per cent contraction, should recover thanks to the substantial support measures taken by the government.

Unemployment is currently at 8 per cent, and the increase in job losses has been less than anticipated, Petridis noted.

“Unemployment is expected to start declining in 2021 to reach 7 per cent for the year.”

Public finances have seen a sharp increase in debt, but this has of course been the case in all EU Member States as support measures and health protection during the pandemic crisis had to be financed, Petridis pointed out.

“Public debt is at 120 per cent of GDP, up from 95 per cent in 2019. Traditional bond issuance by the government has helped to mitigate the sharp increase,” Petridis said. Markets consider this a “benchmark level” for Cyprus’s public debt, he added.

Credit rating agencies have praised Cyprus for keeping public finances at this level.

“Our policy is to place public debt on a declining trend as of 2021 onwards, expecting public debt to decline to around 98 per cent of GDP by 2023.

“Despite the pandemic setback, our policy priorities remain the same. They are achieving macroeconomic stability, implementing prudent fiscal policies, ensuring financial stability, and establishing a competitive business climate, as well as a friendly regulatory environment of a high standard. In this context, the government’s broader strategy for economic recovery includes the implementation of much needed structural reforms for the development of key sectors.

“The European Recovery funds will provide a mix of grants and loans, and this opportunity basically constitutes our blueprint for the coming year. It is expected to be instrumental in the revamping of the resilience of our economy, with especial reference to digital transformation. We believe that the additional €1.1 billion in investment will be key for our economy to become more competitive on the global economic stage,” Petridis said.

Banking sector is now mature; Non-Performing loans are significantly reduced

“As regards the banking sector, our goal is to tackle the remaining challenges including “legacy” NPLs, but also new challenges that may arise due to the pandemic and the repercussions to the economy. As regards “legacy” NPLs, there has been substantial reduction up until the latest available data (September 2020) with the ratio of NPLs to total loans dropping to around 21 per cent, mainly through restructurings, debt to asset swaps and sale of loans. These figures include the recent package of NPLs sold by the Bank of Cyprus, in the context of the project “Helix 2,” Petridis continued.

In particular, since the end of 2014, there has been a significant reduction of the NPL ratio by around 78 per cent. We acknowledge that the ratio of NPLs is still high and in this context the Government has prepared an action plan to address the remaining stock of non performing loans. Peak of NPLs was recorded in 2014 at €28 billion, equivalent to 45 per cent of loans. The latest available data of September 2020 indicates a stock of €6,3 billion, equivalent to 20 per cent of loans.  In 2021, we expect a further reduction to be recorded.”

Cyprus Banking is now very sustainable — Bank of Cyprus

“Cyprus is under the European banking framework, that is the big banks are directly supervised by ECB and small banks bonds are supervised by the central bank under the pan-European regulatory and compliance framework,” noted Emilios Tannousis, manager Wealth Management Global Corporate Banking & Markets Bank of Cyprus.

“At the same time, the banking landscape is changing not only in Cyprus, across Europe. So in Cyprus, we’re observing the licensing and the entrance of acquiring companies under the supervision of the Cyprus central bank, so that our banks may offload non-performing exposure in a way that we couldn’t do in the past. So this helps our banks in their operational model to divert into organic growth and, and profitability, through cooperating with these large, multinational that might want to relocate in Cyprus,” Tannousis said.

Cyprus banks have years of experience in working with international clients, he continued. “Cyprus banks are always extrovert. We are ready to offer risk management solutions, treasury management solutions to the corporate side. We collaborate with the biggest fund houses in the world, and we are cooperating with the both the global banks of the world and with the most important custodians for the safekeeping on the investments of our clients.”

But we can not only handle the affairs of large corporates, but also those of their employees who relocate to Cyprus.  We can offer family planning,  wealth management solutions, and investments if these employees wish to make them.  We can provide family planning and estate management as well.”

Digital transformation that is underway in Cyprus banking will drive efficiency, Tannousis said.

“Of course, there is competition there, but also there are more tools for our customers. So the current status of the banking industry in Cyprus is very sustainable. We have challenges because of the pandemic. But I do believe that, with the steps that have been taken, and the clear strategies of the bank, with the guidance from the regulators, I believe that they will be part of the solution and not part of the problem.”