Standard & Poor's reaffirmed Cyprus's long-term credit rating at BBB-, while maintaining a positive outlook, stressing that despite the Ukrainian crisis and economic sanctions against Russia, the medium-term outlook for the Cypriot economy remains consistent. “While we expect that the crisis in Ukraine will worsen the economic performance of Cyprus through sanctions imposed on Russia, an important economic partner (Cyprus), the medium-term economic outlook remains solid,” S & amp; Ps said. the average annual growth rate in the period 2023 – 2025 will reach 3.2%.
He notes that while economic growth performance will be lower this year due to strong pressures on the Russian economy, solid economic activity is expected, supported by disbursements from the European Recovery and Sustainability Fund for the period 2021-2026.
“We expect that the escalation of Russia's intervention in Ukraine and the consequent Western sanctions against Russia will burden economic activity in Cyprus, given the close economic and financial relations, which adds to rising energy prices,” he said. According to the house, the closure of airspace on Russian aircraft will affect tourist arrivals from Russia, the second largest tourist market in Cyprus after the United Kingdom, although a strong recovery in arrivals from EU countries will could partially fill the gap.
He also notes that Russia, including Russians with Cypriot citizenship, is a key market in the business services sector, accounting for 11% of Cypriot GDP and a significant share of wider exports, while the impact on key Russian financial institutions from sanctions will further burden the services sector in Cyprus.
It also warns that risks could escalate rapidly due to large transactions through special purpose entities registered in Cyprus, although links to the real economy remain limited.
“However, while we wait for growth will be lower this year, the structural trend and prospects are very strong “, the house emphasizes, adding that it expects that the fiscal policy will remain focused on reducing economic vulnerabilities and improving the health of the financial sector.
< p>For public finances, the house estimates that the budget deficit of 1.8% in 2021 was much lower than estimated and adds that it expects continued improvement and surpluses in 2024.
For public debt, the S & Ps notes that after its significant increase in 2020 to 115% of GDP, the improvement in fiscal performance led to the decline in 2021.
“We expect this trend to continue, with the general debt government to fall to 80% in 2025 “, he adds.
He also points out that the financial vulnerability associated with high levels of private debt will persist. For the banking sector, S & amp notes that while troubled assets have declined significantly, mainly due to NPL sales, they still remain high compared to those of European banks.
According to the house, the high concentration of loans in the real estate sector (13% of the total loan portfolio) and in tourism (9%) in relation to the high share of loans in stage 2 could lead to a deterioration in the quality of assets and delay the resolution of residual risks from the 2012 crisis.
However, supportive fiscal policy and auxiliary monetary policy, combined with banks 'restructuring efforts in the most vulnerable sectors, will reduce losses and distribute the impact on banks' books over a number of years. Therefore, he expects forecasts to remain above normal levels and that the MES index will remain at 9% & # 8211; 14% for 2022 and 2023.
He also states that the state-owned KEDIPES is working on a mortgage lease plan, which could handle loans of up to € 1.5 billion, corresponding to about 40%. of total NPLs, reducing the overall red loan ratio to 9%.
He also noted the reduction in banks' reliance on foreign deposits and insufficient liquidity, adding that banks have a capital cushion to absorb potential deterioration in assets. “However, we expect that banks' ability to raise capital will remain limited for the next two years, as they continue to invest in downsizing and digital transformation,” the company added.
At the same time, the house estimates that the direct exposure of the banking system in Russia through loans and deposits is limited, although some smaller banks may have a higher concentration. He also expects that the impact on Russian economic activity could somewhat affect the volatility of deposits in Cyprus, although the liquidity surplus (deposits cover 1.8 times the loans) could offset these changes.
Alexei Mordasov/”Lady M”: His luxury yacht confiscated richer Russian
Visible danger of running out of feed
LIVE & # 8211; Ten days of terror in Ukraine: Russia orders ceasefire to evacuate civilians