NICOSIA, July 19 (Xinhua) -- Fitch and Moody's made positive assessments of the Cypriot economy following moves by the government to face an upheaval in the banking sector of the eastern Mediterranean island, statements issued on Thursday said.
Fitch praised the decision by the government to sell to Hellenic Bank state-owned Cyprus Cooperative Bank (CCB) to avoid its liquidation, as it will result in a stronger bank unit second to primary lender, Bank of Cyprus.
It said the issue of 3.19 billion euros worth of bonds to bolster CCB' assets prior to the sale caused Cyprus's sovereign debt to jump from 97.5 percent of GDP (gross domestic product) at the end of 2017 to 110 percent, but added that this will not alter the downward medium-term fall of debt to GDP ratio.
"We still forecast debt to GDP to fall back below 100 percent within our rating horizon, albeit one year later, in 2020, as Cyprus continues to achieve fiscal surpluses and strong economic growth supports revenues," Fitch's statement said.
As a result of Hellenic Bank's stronger position, Fitch said it placed its "B" rating on a positive watch "reflecting our view that the acquisition will be positive overall for the bank's credit profile."
Moody's said it expected a stronger banking sector and higher prices from non-performing loans to result from the waiver of a 20 percent capital-gains tax on the sales of properties when proceeds are used to repay problem loans, or when the proceeds come from the sale of properties from credit-acquiring companies.
Central Bank of Cyprus said NPL's fell form 28 billion euros in March 2015, to 19 billion last March, which account for about 100 percent of Cyprus' GDP.
Cyprus' Finance Minister Harris Georgiades said that assessments by the rating agencies are mostly in line with assessments by his ministry.
"Decisions made on the banking system were very difficult but will have a positive impact on the economy, while the sovereign debt will be manageable despite its temporary increase," he said.
He said he expected the positive impact to be affirmed in the real economy in the immediate future.
