NICOSIA, Sept. 15 (Xinhua) -- Standard & Poor's (S&P) has assigned Cyprus an investment grade ratings for the first time since 2012, when the eastern Mediterranean island was relegated to junk grade and was forced to seek bailout, an emailed statement said on Saturday.
The statement said the agency could consider raising the ratings on Cyprus again over the next two years if the economy deleveraged significantly, or if the banking sector reduced its nonperforming exposures materially and its financial conditions improved.
S&P said in its statement that its decision to upgrade Cyprus's ratings from BB+/B to BBB-/A-3, which is the lowest investment grade, was made after the government carved out the bad assets of the second largest bank, paving the way for a significant reduction in the nonperforming loans of the banking sector.
The government's decision to sell the good assets of the state owned Cyprus Cooperative Bank and buy the bad part of the lender reduced total nonperforming loans standing at 19.93 billion euros (23 billion U.S. dollars) at the end of May by 7.5 billion euros.
Nonperforming loans sky rocketed to about 28 billion euros after Cyprus was cut out of financial markets in more than six years ago and was pulled back from near bankruptcy with a 10 billion euro assistance program by the Eurogroup and the International Monetary Fund in March 2013.
But S&P said that the transformation of the residual Cyprus Cooperative Bank into an asset management company tasked with managing a non-performing loans portfolio will significantly reduce the banking sector's nonperforming exposures to an estimated one-third of total loans from about one-half before.
S&P also said that strong economic growth through 2021, prudent policymaking and moderate state support to the banking system will allow the government to run budgetary surpluses and prompt a reduction in public debt.
It added that the stable outlook assigned to the economy balances its view of Cyprus' strong growth prospects against its still highly leveraged public and private balance sheets.
Growth it projected to reach 4 per cent this year, returning the economy to its pre-crisis size and average 3 per cent over 2019-2021.
The agency said the public debt will rise to 104 per cent of GDP by the end of this year but government surpluses will help it starting declining as of next year and dropping to 90 percent of GDP by 2021.
The spokesman of the Cypriot government hailed the return of the eastern Mediterranean island to investment grade, saying it will help re-financing older debt with cheaper money.
He also said that thanks to the prudent economic policy followed he expected upgrading of the Cypriot economy by other rating agencies and a further upgrading of the economy after six months. (1 euro = 1.16 U.S. dollars)
