Fitch upgraded Cyprus's credit ratings to BBB- from BB+, the second ratings agency in the space of little over a month to pull the island back into investment grade territory after a bailout in 2013. The outlook was stable, Fitch said in a news release on Friday.
The agency said Cyprus is benefiting from a strong economic recovery with real gross domestic product (GDP) reaching pre-crisis levels, and forecast the economy would grow 4 percent in 2018 and 3.8 percent in 2019. It was supported by large foreign-financed investment projects in construction and tourism, and robust private consumption, Fitch said.
Fitch said it expected the island to record a fiscal surplus of 2.7 percent of GDP in 2018, and 2.4 percent next year. "Cyprus's ratings are supported by a high level of GDP per capita, strong governance indicators and a favourable business environment significantly above 'BBB' rated peers' and closer to 'A' category peer levels," Fitch said.
However it said that the banking sector was still vulnerable, with "very weak asset quality and high NPEs (non-performing exposures) ratios are still weighing on new lending and profitability." It noted that important legislative amendments aimed at facilitating NPEs securitisation and sales of loans, and strengthening foreclosure and insolvency toolkits were adopted by the Cypriot parliament in July.
Fiscal slippage and heavy exposure of two key banks to indebted Greece forced Cyprus into accepting an international bailout worth up to 10 billion euros in 2013. The bailout was contingent on Cyprus winding down one bank, Laiki, and converting a portion of unsecured deposits in another bank, Bank of Cyprus, to equity in a process known as a 'bail-in'. Last month Standard and Poor's upgraded Cyprus out of junk territory to BBB-.
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