Standard & Poor's Upgrades Cyprus to BB+

According to press reports, Standard & Poor’s (S&P) has upgraded Cyprus’s sovereign rating to BB+ from BB.

“The stable outlook balances our view of Cyprus’s fiscal and economic progress against unusually high levels of nonperforming loans in its financial sector, alongside risks of weaker reform delivery ahead of next year’s presidential elections,” the rating company said in a statement on its website on Friday adding that it affirmed the B short-term rating. “At an estimated 48 per cent as of end-November 2016, nonperforming loans are among the highest of all rated sovereigns. We believe that the banking sector is reducing asset quality concerns, although we still view financial stability as a main risk and consider the contingent liabilities from the financial sector as moderate”.

“We expect labour demand to remain solid and project that the unemployment rate, 13.3 per cent at year-end 2016, will fall below 12 per cent by 2018,” S&P said. “We forecast investment activity to accelerate with foreign private-sector funding contributing to projects in the tourism and energy sectors, also reflecting funding from the European Union (EU), the European Investment Bank (EIB), and the European Bank for Reconstruction and Development (EBRD). Although domestic banks have increased lending activity and the real estate sector has stabilized, the protracted restructuring in the banking sector will constrain construction activity”.