Insider Economy CCB closure alleviated major risk to financial stability, but reform momentum must...

CCB closure alleviated major risk to financial stability, but reform momentum must go on -ESM report

“Cyprus regained an investment grade rating in 2018 thanks to strong economic growth, a prudent fiscal policy, and a more resilient financial sector” and “the winding down of Cyprus Cooperative Bank (CCB) alleviated a major risk to financial stability through the removal of a large share of NPLs from outside the banking sector”, according to the chapter on Cyprus, issued under the annual ESM report for 2018.

According to the ESM report, “this one-off operation, however, adversely affected public finances in 2018 and banks still remain burdened by a sizeable NPL stock”, warning that “sustained reform momentum is key to mitigating the domestic and external risks that could unravel efforts made over recent years”.

“Despite Cyprus’ solid recovery in recent years, the country needs to safeguard the robust fiscal perfor- mance to relieve the public debt burden. And while the financial sector has made important progress, the high level of NPLs remains a key vulnerability for banks”, the ESM warns.

More specifically, the chapter on Cyprus of the annual report states that “the Cypriot economy posted another consecutive year of strong growth. GDP grew close to 4% in 2018, primarily driven by private consumption. Productivity growth reached the pre-crisis level, reflecting efforts to remove barriers in the service market. Economic activity helped to reduce the unemployment rate to close to 8%. Yet Cyprus’ economy remains exposed to external risks, which may lead to a sharper-than- expected slowdown of GDP growth that could, for example, reduce tax receipts and put a halt to the downward trend of unemployment.”

“Excluding the CCB transaction and its one-off impact on public finances, a combination of favourable eco- nomic conditions and prudent fiscal policy kept public finances on the virtuous path. The Commission projects that the general government surplus should still exceed 2.5% of GDP in the medium-term. The government’s support of the CCB partial sale temporarily interrupted the reduction of public debt, which had fallen below 100% of GDP at the end of 2017. The CCB deal will also lead to increased financing needs in the coming years. Cyprus currently faces no major risks in meeting its loan service payments. The reform momentum should, however, continue, particularly in areas related to public administration law”, the annual report reads.

Furthermore states that “Cyprus’ banks made important progress, but the sector remains vulnerable”.

“NPL ratios in the banking sector declined significantly but remain among the highest in Europe. In 2018, several NPL portfolio sales took place. Banks advanced in their restructurings but suffer from low profitability and additional provision- ing pressures. Furthermore, the government adopted a three-pillar strategy to stabilise the sector and reduce NPLs. A crucial pillar was the CCB’s orderly market exit. A domestic competitor acquired parts of CCB’s assets and liabilities, while another state- owned entity is gradually reducing the former CCB NPL stock. The second pillar was the strengthening of the legal framework for insolvency, foreclosures, and asset disposals as well as the adopting of a secu- ritisation law. The third pillar, an NPL subsidy scheme with pre-defined eligibility criteria, supports borrowers who face difficulties repaying loans backed by their primary residence”, states the report.

Finally the report registers that “the strong economic performance and the accelerated clean-up of banks’ balance sheets led to several rating upgrades. Cyprus now enjoys an investment grade rating from three of the four major agencies, and sovereign bond yields declined substantially dur- ing the year. Taking advantage of these developments, Cyprus issued a 10-year bond at a yield of 2.4% in September 2018. Going forward, the high private and public debt levels will remain the major burden on the country’s creditworthiness.”

(Cyprus News Agency)

Top Stories

Trump says protesters would have met ‘vicious dogs’ if White House fence breached

U.S. President Donald Trump on Saturday said demonstrators protesting the death of a black man who died after a white police officer knelt on...

Paphos: Police publish photos of stolen valuables

  Police have found jewellery, watches and other valuables in the possession of a 22 year old and a 15 year old who are under...

Protests flare around the United States over Minneapolis killing

Violent protests flared overnight in several U.S. cities as demonstrators vented their anger over the killing of George Floyd, a black man who died...

Just one new Covid-19 case on Saturday; total at 943

  One person has tested positive for coronavirus from a total of 2061 tests, the Health Ministry said on Saturday, bringing the total since the...

Paphos: 10 hotels to reopen in June

  Ten of the 57 hotels in the Paphos district are expected to reopen in June, the president of the Paphos branch of the Cyprus...

Taste

Local cuisine: An introduction

Rich in fresh ingredients and tasty herbs, offers the very best of Mediterranean culinary delights. Head out to a tavern and feast on a...

Spiced lamb with beetroot salad and scented yoghurt

Lay the lamb on a tray, skin side down. Rub with crushed garlic, sprinkle with spices and ground pistachios, wrap in plastic wrap and...

Easy seafood pasta with white wine sauce

Ingredients: 2-3 tbsp olive oil 1 garlic clove, chopped 2-3 tablespoons of whipped cream 1/3 cup white wine 300g spaghetti, roughly broken 300-400g of...

Traditional salads that will blow your mind away

This traditional salads will make you actually love salads! Cyprus may be famous for souvla and kleftiko but if you try the traditional salads with...