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A Dive Into The Economy of Cyprus

As the Mediterranean island nation’s economy has stabilized, so too have its banks.

One of Cyprus’s biggest challenges remains the banking sector’s high level of nonperforming loans (NPLs): currently around 44% of the total, according to Fitch Ratings.

A Dive Into The Economy of Cyprus

 

Financial experts including, Michael Kammas, director general of the Association of Cyprus Banks, has expressed confidence that the sector is heading in the right direction, despite the contraction following the 2013 crisis. In Cyprus,NPLs are on a downward move around $26.4 billion against €27.3 billion in December 2014, a drop equivalent to 30% of Gross Domestic Product (GDP).

 

Cyprus hopes to build a stronger regulatory environment

The restructuring of NPLs, initially focused on large corporate loans, is now shifting toward Small Scale and Medium Enterprise (SME) and consumer-sector loans.

Due to the stabilization of the Cyprus economy, confidence has returned over the past three years.

The sector’s Tier 1 capital ratio of 15%, in line with the EU average is well above the 4.5% minimum. This growth has enabled banks to resume lending.

More foreign investors are coming into the sector making it a good news for Cyprus and its banks. With new regulations and firmer supervision, IT systems and increased digitization in place, things are very different now. Banks are signing agreements with foreign entities that are experts in restructuring NPLs; and this will support Cyprus’s recovery. Much has changed in the island nation as it adjusts to post-crisis reality, with banks focusing on domestic business. The island nation needs to keep up the pace of reform, including modernizing the public sector too. Rigidities in employment law need to be eased and digitization made more efficient.

A Dive Into The Economy of Cyprus
Cyprus

Cyprus’s small size and population (which is around 1.2 million) inclusive of both Greek and Turkish communities have facilitated a great urnaround. Also,the country’s key aim was the strong determination to adhere rigorously to the International Monetary Fund (IMF) recovery program shortly after the island nation’s 2013 bailout.

A record 3.6 million tourists visited the island last year, a 14.6% rise from 2016, encouraging investment across the sector in associated professional services and in agribusiness.

The European Bank for Reconstruction and Development (EBRD) is actively in support of Cyprus’s recovery and diversification, investing €259 million in six projects. The bulk of this investment has been in the financial sector, including equity investments in Hellenic Bank and Bank of Cyprus, and in trade finance.

From my investigations, Cyprus has ambitions to become a major energy producer.At the latter part of 2017, Cyprus signed a provisional agreement with Israel, Greece and Italy for an aggressive 2,000-kilometer (1,243-mile), three-kilometer deep, €6 billion pipeline project to connect the four countries by 2025. Kudos! Cyprus.


Sources:  Research    Images

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