Cyprus banks to maintain stability, but lower profits, says Moody, ’s
– Risks associated with loans for Cypriot banks are expected to decrease due to economic growth, declining inflation, and unemployment rates.
– Moody’s predicts a decline in bank profits from recent highs.
– A gradual decrease in net interest margins is anticipated due to rising deposit costs and falling interest rates, influenced by competition and high levels of private sector debt.
– Stricter loan criteria and loan restructuring efforts are improving loan quality and reducing problematic loans.
– Asset quality risks from foreclosed properties are diminishing, supported by a strong real estate market.
– The banking sector in Cyprus is characterized by a low loan-to-deposit ratio and ample liquidity reserves.
– Cyprus’ GDP is forecasted to grow by 2.8% in 2024 and 3.2% in 2025-27, outpacing the euro area by 0.8% in 2024.
– Economic growth is supported by diversification in the services sector and significant foreign direct investment projects.
– Moderate growth in the loan portfolio is expected due to the banking system’s saturation, high private sector debt, and elevated interest rates.
– Monetary policy is expected to remain restrictive, even with interest rate reductions by the European Central Bank.
– The NPE ratio is expected to decrease below 3% this year.
– The proportion of foreclosed assets relative to bank equity is decreasing, supported by the real estate market.
– Capital risks are declining, with banks completing risk release and balance sheet restructuring.
– The Common Equity Tier 1 ratio for assessed banks increased to 18.8% at the end of 2023.
– Moody’s assessment focuses on Cyprus’ two largest domestic banks, Bank of Cyprus and Hellenic Bank, which represent a significant portion of the banking system’s assets.
– The weighted average Baseline Credit Assessment of the two major banks is ba2, with a weighted average asset-based deposit rating of Baa3.