Moody's says Cyprus's rating profile reflects small but wealthy economy

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NICOSIA, Aug. 8 (Xinhua) -- The current Ba2 stable ratings of Cyprus reflects its small but wealthy economy, Moody's Investors Services said in its annual report on the eastern Mediterranean island on Thursday.

It added that the Cypriot economy exhibited an improved resilience and the government's fiscal outperformance in the wake of the country's banking crisis.

However, Moody's warned that it could change the rating outlook to negative if the positive debt trend were to reverse, or if recent legislative actions in the banking sector failed to significantly reduce non-performing exposures (NPEs).

This was a reference to recent legislation on repossessions passed by the populist opposition in the Cypriot parliament, which tried to reverse a law passed last year and to purportedly give protection to weak loan owners against losing their mortgaged primary residence.

Cypriot President Nicos Anastasiades refused to sign it and sent it back to parliament for reconsideration but it was passed a second time after minimal changes which enabled loan owners to apply to the Financial Ombudsman to certify violation of regulations by the banks before proceeding to seek court protection against repossession.

The Attorney General advised Anastasiades to ask the Supreme Court to declare the law unconstitutional for infringing on the right of freely entering into business agreements, media reports said on Thursday.

The application to the Court has the effect of suspending the new legislation and restituting the old one.

Moody's warned that "negative rating pressure would emerge if the debt trend were to reverse, or if recent legislative actions in the banking sector failed to significantly reduce NPEs".

On the fiscal aspect of the economy, Moody's said strong growth trends and primary surpluses have generated positive debt trends.

"We expect deleveraging to resume this year, after a one-off spike in the debt burden in 2018 associated with the capital injection to Cyprus Cooperative Bank," the report said. Enditem

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