Specifically, the increase in deposits made in the Cypriot banking system in 2016 amounted to 3bn Euros, with total deposits amounting to 49bn Euros, the highest level since the 2013 financial crisis which lead a 10bn Euros bailout scheme.
The agency noted: “The increase in deposits was driven by more stable domestic deposits and is credit positive because it improves banks’ funding structures. It also points to households’ increased capacity to service their high levels of debt, a significant portion of which is distressed.”
Moreover, the agency added: “The improvement reflects Cyprus’ solid economic growth, which we forecast at 2.7% for 2017, lower unemployment and the conclusion of its Economic Adjustment Programme in March 2016.”
These factors have played an important role in restoring the confidence of depositors and consequently leading to the increase in the deposits in the Cypriot banking system.
Moody’s also expects that the predicted economic growth will positively impact the households’ economic conditions and consequently improve their ability to service their debt.
It is worth noting that the major issue which the Cypriot banks have to overcome is that of the restructuring of non-performing loans; addressing this issue Moody’s stated: “Nevertheless, Cypriot banks’ balance sheet rehabilitation process will be lengthy because of the long cure periods for restructured loans before they are reclassified as performing, and substantial distressed debt that has not been restructured yet.”
The positive feedback which Cyprus receives is encouraging and the restoration of investor’s confidence as well as the improving economic conditions are crucial factors to the country’s economic recovery.