14/10/2015 10:13
Cypriot banks face the challenge of managing down their exceptionally large problem loan volumes amid a still weak economic environment, according to Fitch Ratings.
In their new report on Cypriot banks issued yesterday under the title “Cypriot Banks in the Aftermath of a Deep Restructuring” Fitch Ratings agency say that the Cypriot economy is set to recover gradually after several years of recession but the operating environment for the banking sector is still weak, with high unemployment and muted prospects for the property market.
The full lifting of capital controls and the approval of the new foreclosure and insolvency frameworks in April 2015 marked the completion of the deep restructuring process that the Cypriot banking sector has undergone since March 2013.
However, the agency notes that Bank of Cyprus' and Hellenic Bank's viability remains at risk from their elevated non-performing exposures, which accounted for 62% and 58% of their end-1H15 gross loans respectively.
As regards the insolvency law reform approved by the Cypriot parliament in April 2015 it is estimated that it should facilitate corporate debt restructurings and accelerate repossession processes.
However, Fitch say that the effectiveness of the reform is still subject to implementation risks, largely related to the political will to allocate the necessary resources, monitor the progress made and readjust the framework if required.
“We believe that the benefits of the reform will only feed through in the form of material reductions of problem loan volumes over the medium term” Fitch add.
Moreover, it is noted that sector deposits have remained broadly stable since the Cypriot authorities removed all the remaining restrictions on the free movement of capital from the country in April 2015.
“The banks' equity raisings have helped to restore investor confidence and Cyprus has maintained its tax-related attractiveness as an international investment platform”.
However, as stressed, reliance on foreign-related deposits remains high and makes the banking sector vulnerable to economic and political instability in other countries, primarily Russia and Greece and to fluctuations in foreign investor confidence in Cyprus.
In their new report on Cypriot banks issued yesterday under the title “Cypriot Banks in the Aftermath of a Deep Restructuring” Fitch Ratings agency say that the Cypriot economy is set to recover gradually after several years of recession but the operating environment for the banking sector is still weak, with high unemployment and muted prospects for the property market.
The full lifting of capital controls and the approval of the new foreclosure and insolvency frameworks in April 2015 marked the completion of the deep restructuring process that the Cypriot banking sector has undergone since March 2013.
However, the agency notes that Bank of Cyprus' and Hellenic Bank's viability remains at risk from their elevated non-performing exposures, which accounted for 62% and 58% of their end-1H15 gross loans respectively.
As regards the insolvency law reform approved by the Cypriot parliament in April 2015 it is estimated that it should facilitate corporate debt restructurings and accelerate repossession processes.
However, Fitch say that the effectiveness of the reform is still subject to implementation risks, largely related to the political will to allocate the necessary resources, monitor the progress made and readjust the framework if required.
“We believe that the benefits of the reform will only feed through in the form of material reductions of problem loan volumes over the medium term” Fitch add.
Moreover, it is noted that sector deposits have remained broadly stable since the Cypriot authorities removed all the remaining restrictions on the free movement of capital from the country in April 2015.
“The banks' equity raisings have helped to restore investor confidence and Cyprus has maintained its tax-related attractiveness as an international investment platform”.
However, as stressed, reliance on foreign-related deposits remains high and makes the banking sector vulnerable to economic and political instability in other countries, primarily Russia and Greece and to fluctuations in foreign investor confidence in Cyprus.
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