Fitch Ratings upgraded on Friday Cyprus` long term foreign and local currency issuer default ratings (IDRs) to `B+` up from `B-` with a positive outlook. The international rating agency says in a press release that the issue ratings on Cyprus` senior unsecured foreign and local currency bonds have also been upgraded to `B+` from `B-`.
The Country Ceiling has been raised to `BB+` from `BB-` and the Short-term foreign currency IDR has been affirmed at `B“, it adds.
“Cyprus has established a track record of fiscal consolidation and over-performance on its fiscal targets,” the ratings agency says.
Fitch now projects “a deficit of 1% of GDP for 2015 and surpluses of 0.2% and 1% for 2016 and 2017, respectively.”
At the same time it forecasts the general government gross debt (GGGD) “to peak at less than 108% of GDP this year, before falling to around 100% in 2017”.
This, it points out, “compares with a peak of over 130% projected by Fitch in June 2013.”
“At more than double the `B` median of 43% for 2015, the GGGD ratio is still high and reduces Cyprus’ fiscal scope to absorb domestic or external shocks”, it says.
Fitch also highlights that deposits have been broadly stable since capital controls were lifted, “although non-resident deposits (30% of total) declined temporarily in the run-up to the Greek crisis this summer.”
“While direct financial links between Greek-owned subsidiary banks and Greece have been reduced significantly, the sector remains vulnerable to Greece mainly via investor confidence”, it notes.
The ratings agency says that there are still significant risks to creditworthiness posed by Cyprus` continued deep economic and financial adjustment.
It considers that “the environment for banks remains challenging, in particular with regard to exceptionally weak asset quality.”
“The stock of consolidated sector NPEs was 47.4% of gross loans in August, the highest of all Fitch-rated sovereigns. Unreserved problem loans for the sector (ie gross NPEs minus system-wide provisions) stood at EUR18.8bn, or 107% of GDP for the same period,” it points out.
At the same time it adds that “implementation risks around banking reforms remain high as the process is dependent on the political will to confront debtors, which could wane in the run-up to parliamentary elections in May 2016.”
Government Spokesman Nikos Christodoulides has welcomed the double upgrading of the Cypriot economy by Fitch rating agency, stressing that the great effort must continue for full economic recovery.
“The government welcomes the double upgrading of the financial and credit ability of our country by the Rating Agency, Fitch”, he says in a written statement, issued here today.
He points out that this “development is the result of the collective effort on the part of the Government, the Parliament, the social partners but, mainly, of the Cypriot people.”
According to Christodoulides “the prudent and consistent economic policy and the effort for reform and modernization bring about results and are internationally recognized.”
This great effort, he points out, must continue with the same persistence and commitment for the full recovery of the Cypriot economy to the benefit of the citizens.
House of Representatives President Yiannakis Omirou has welcomed the upgrade of the Cypriot economy by Fitch but warned that challenges remain and that a new comprehensive model for growth is necessary.
“The upgrade of the Cypriot economy by Fitch constitutes a positive development”, which has been achieved through the great sacrifice of fellow citizens, Omirou says in a written statement, released here today.
The upgrade will enhance Cyprus` effort to tap the markets but “problems remain and challenges are great”, he notes.
Referring to non performing loans, he points out that their percentage is still at a very high level. Resolving this matter while continuing to uphold social cohesion, Omirou says, will safeguard financial stability and will enable the economy to have access to funding.
Finding a solution to the NPLs will mean the return to stable and sustainable growth rates, he adds.
The House President also warns that “the effort to give a boost to the Cypriot economy and enhance social cohesion must be continuous.”