S&P Global Ratings has upgraded the outlook of the Bank of Cyprus to positive, citing a decrease in economic risk for banks operating in the country. This shift from stable to positive reflects a more supportive macroeconomic environment, according to the agency’s announcement on Thursday.
- Despite these optimistic projections, S&P cautioned that the cyclical nature of Cyprus's economic performance could lead to fluctuations that differ from similarly sized economies.
The agency confirmed the bank’s long-term credit rating at BBB- and its short-term rating at A-3. This affirmation indicates S&P’s confidence in the improving conditions for the Cypriot banking sector.
Bank of: Positive Economic Indicators
The revision of the outlook is primarily based on S&P’s assessment that economic risks for banks in Cyprus are diminishing. The agency noted that the Bank of Cyprus stands to benefit from a robust economic environment, as growth remains strong.
Recent years have seen significant economic growth, particularly driven by a flourishing services sector that includes tourism and information technology. These developments have been bolstered by an influx of corporate relocations to Cyprus, enhancing the overall economic landscape.
Resilience to Challenges
S&P highlighted the resilience of the Cypriot economy amid various challenges, including regional conflicts and global trade tensions. The agency believes this resilience underpins the strengthening creditworthiness of the private sector.
“The economy has benefited from a thriving services sector particularly tourism and information, technology and communications services as a result of corporate relocations to Cyprus,” S&P noted in its report.
Ongoing Risks and Compliance Concerns
Despite the positive outlook, S&P emphasised that Cypriot banks still face significant risks due to the country’s status as an international financial centre. This situation constrains the ratings assigned to banks based in Cyprus, as the small, open economy remains susceptible to external shocks.
Moreover, the agency pointed out that inherent cross-border risks related to anti-money laundering and counter-terrorism financing remain a critical concern. These risks could lead to higher compliance costs and potential fines, which may challenge banks in maintaining correspondent banking relationships.
As the agency looks to the future, it expects the positive economic trend to persist, supported by favourable labour market conditions, rising real incomes, and substantial investments, including funding from the Next Generation EU programme.
Despite these optimistic projections, S&P cautioned that the cyclical nature of Cyprus’s economic performance could lead to fluctuations that differ from similarly sized economies.
