Sentiment turning positive in Cyprus
Moody’s: Cyprus banks to benefit as property prices recover
Following our update on the positive outlook for the Cyprus property market, it is great to see that view being shared by Moody’s.
The rating agency stated that ‘Cypriot banks will benefit from a sustainable recovery in the Cyprus property market‘. This increase in confidence in the Cypriot banking sector will only act as a further spur to market sentiment.
The statement was issued after the Cyprus Property Index, compiled by the Central Bank of Cyprus, recorded a quarterly increase in the third quarter of 2016, for the first time since 2010.
As the agency notes, ‘recovering property prices would support the construction industry, incentivise mortgage repayments from strategic defaulters who have the capacity but are unwilling to repay and allow banks to offload real estate taken on their balance sheet through debt-to-asset swaps. We expect property prices to broadly stabilise over the coming quarters, and the demand for property to increase gradually from low levels. Real estate sales totaled 7,063 in 2016, versus 21,245 in 2007’.
An improved real estate market would mostly benefit Bank of Cyprus (BOC) and the Cooperative Central Bank (CCB), the agency added.
The BOC acquired €1.3 billion of properties on its balance sheet, which constitute 6% of its total assets, the largest share of any Cypriot bank, the agency said that a gradually recovering property market would facilitate its sale of these assets and reduce the likelihood of the bank recording losses.
Furthermore, the CCB will also benefit because residential mortgages amount to 37% of its gross loans, with 50% of these loans classified as nonperforming exposures as per the European Banking Authority’s broad definition.