S&P Raises Cyprus Credit Rating to BBB- back to Investment Grade

Standard & Poor’s Global Ratings raised its long- and short-term foreign and local currency sovereign credit ratings on Cyprus to ‘BBB-/A-3’ from ‘BB+/B’ with a stable outlook.

Commenting on the upgrade President Anastasiades tweeted “The return after 6.5 years to investment grade is the strongest confirmation of the prudent management that we followed and continue to follow, our economy is recovering with the best omens being confirmed.”

Finance minister, Harris Georgiades, said that one of the most important economic policy objectives has been achieved. “The growth perspective is reinforced. Our country is financially shielded. The difficult decisions we were called upon to take are being justified,” the minister tweeted.

In its announcement S&P explained the rationale behind its decision: The Cypriot economy will continue to grow at a solid pace through 2021, our forecast horizon, enabling the government to alleviate its debt burden.

Measures by Cypriot policymakers to markedly reduce the stock of nonperforming assets in the banking system via financial support and legislative changes have improved the sector’s health and are likely to facilitate further recovery efforts. Any additional financial state support to the banking sector will only moderately affect the sovereign balance sheet.

The ratings are also supported by policymakers’ efforts to consolidate public finances and restore the health of the banking sector. In 2018, the government injected about 15% of GDP into the country’s second-largest bank, the majority state-owned Cyprus Co-operative Bank (CCB), to strengthen its balance sheet and carve out its nonperforming assets into a residual entity. This will significantly reduce the banking sector’s non-performing exposures (NPEs) to an estimated one-third of total loans from one-half before.