Moody's adjusts outlook on Cyprus from stable to positive

Source: Xinhua| 2019-09-21 21:47:15|Editor: Shi Yinglun
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NICOSIA, Sept. 21 (Xinhua) -- Moody's Investors Service has changed the outlook on Cyprus' Ba2 ratings to positive from stable, said a statement available here on Saturday.

The statement said that the change to the outlook was due to two reasons, the ongoing improvements in bank asset quality, and the improvement of Cyprus' fiscal strength beyond previous expectations.

It also said its affirmation of Cyprus' Ba2 ratings, which is still below investment grade, is justified by the balancing of the credit-supportive factors, such as wealth, improved economic resilience, and fiscal outperformance, against constraints such as institutions that are weaker than European peers, a lack of economic diversification, high debt across all sectors of the economy, and still-high non-performing exposures in the banking system.

Non-performing exposures are a legacy of the crisis in 2013, when Cypriot economy was pulled back from bankruptcy thanks to a bailout package by the Eurogroup and the International Monetary Fund.

Bad loans have been brought down by 30.6 percent, from 48 billion euros to 10.14 billion euros at the end of April, according to the latest data announced by the Central Bank of Cyprus this week.

Moody's acknowledged that the non-performing loans risk factor continues to decline and added that it expected bad loans to be reduced possibly by one-half over the next 12 to 18 months as a result of the Estia (house) plan and the completion of the sales of loans by banks to investment funds over the same period.

Estia plan is addressed to about 12,000 low-income loan owners who have been invited to apply for participation so as to benefit by having one-third of their loan written-off, provided they will start repaying their debt.

Moody's also said that Cyprus' debt metrics are improving at faster pace because of large primary and fiscal surpluses which are expected to continue.

The statement added that Moody's expected the sovereign debt to be brought down to 97 percent of GDP this year and to around 75 percent by the end of 2023.

Moody's concluded by saying that they would consider upgrading Cyprus' sovereign ratings if there was no reversal in fiscal policies and non-performing loans would fall below 20 percent and the sovereign debt would be reduced below 90 percent of GDP over the coming one or two years.