New York – Moody`s Investors Service, upgraded last week the government of Cyprus’ long-term issuer rating to Ba2 from Ba3. All senior unsecured bond and programme ratings have also been upgraded to Ba2 and (P)Ba2, respectively. Cyprus’s short-term ratings have been affirmed at Not Prime (NP) and (P)NP. The outlook on Cyprus’s ratings has been changed to stable from positive.
According to Moody’s, the upgrade of Cyprus’ ratings to Ba2 from Ba3 is driven by a number of factors, such as the ongoing recovery of the banking system, in the context of which the liquidation of Cyprus Cooperative Bank Ltd via the sale of its healthy assets and liabilities has materially reduced systemic risks emanating from the banking sector. Also, from the positive fundamental trend with respect to the government`s balance sheet, based on robust nominal growth and a primary surplus, irrespective of the one-off related to the recent CCB transaction.
The stable outlook on Cyprus’s Ba2 ratings, balances Cyprus’ strong fiscal dynamics against pressures for higher public expenditure. It also reflects uncertainty around the extent to which new legal tools will enable a material decline in the banking system’s non-performing loan (NPL) ratio, it says.
Shortly after the announcement by Moody’s, Government Spokesman, Prodromos Prodromou, said that the upgrades of the economy from international rating agencies are always important for the Cypriot economy and its prospects.
The positive ratings, he said, “encourage investment activity in our country and the financing terms are improved in case external borrowing is needed”.
He added that Moody’s expects that despite the one-off costs of the Cyprus Cooperative Bank transaction, the general government debt to GDP ratio would fall below 90% by the end of 2021, while confirming the prediction that Cyprus economy will continue to grow in the years to come.
Meanwhile, yesterday, Global Ratings has affirmed its ‘B/B’ long- and short-term issuer credit ratings on the Bank of Cyprus (BoC). The outlook is positive.
“We expect that robust economic recovery, recovering property prices, ongoing reforms in the legal and judicial frameworks, and the liquidation of Cyprus Cooperative Bank (CCB) will help reduce the significant economic imbalances accumulated by the Cypriot banking system throughout the crisis”, S&P said. It also expects Cyprus’ exceptionally high stock of problematic assets to almost halve by the end of 2018 compared with one year earlier.
This decline, according to the rating agency will be mostly driven by factors such as the sale of the CCB’s state-owned good assets to Hellenic Bank and the creation of a government-owned run-off entity that will hold the bad assets from the CCB and will be managed privately and independently.
Also, from further amendments to the legal and judicial framework in order to make it more effective, efficient, and transparent and a specific burden-sharing scheme between banks and the state (the so-called ‘Estia’ scheme) to differentiate vulnerable borrowers from strategic defaulters.
It also calculates that Cypriot banks should be able to reduce NPEs by an additional €2.5 billion, reaching an NPE ratio of about 25% by the end of 2020 from more than 50% as of the end of 2017.
