Canadian rating agency DBRS confirmed Cyprus’s Long-Term Foreign and Local Currency at BBB (low) with a stable trend.
“The confirmation of the stable trend reflects DBRS’s view that while the Cypriot economy continues to perform robustly, more progress is needed to reduce risks to financial stability further”, said DBRS on Friday, adding that “risks to financial stability have declined but remain relatively high”.
DBRS said that the BBB (low) ratings “are supported by Cyprus’s solid budget position, its prudent public debt management framework, its Eurozone membership fostering sustainable macroeconomic policies, and its openness to investment encouraging a favourable business environment”.
Nevertheless, Cyprus “also faces significant credit challenges related to still sizable NPEs in the banking sector, high levels of private and public sector debt, external imbalances, and the small size of its service-driven economy, which exposes Cyprus to adverse changes in external demand” the rating agency noted.
DBRS added that despite the material reduction of in the stock of NPEs – by 64% from their 2015 peak to December 2018 – NPE ratios remain high. The banking system’s NPEs were 30.5% of total loans in December 2018, down from a 49.0% peak in May 2016.
The Canadian rating agency said that the Cypriot economy continues to perform strongly and that in 2019 growth is forecast to moderate to 3.6%.