October 2015


Cyprus Economy Review


Cyprus Government issues €1billion 10-year bond


On 27 October 2015 the Cyprus government issued a €1 billion 10-year bond at an average yield of 4,25%.

This is the lowest rate at which the Republic of Cyprus ever issued a 10-year bond and €450 million (of the money borrowed) will be exchanged with bonds maturing in 2019 and 2020, while the other €550 million will strengthen the government’s cash reserves in the near future after Cyprus exits its adjustment programme.
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It is Cyprus’ third successful market test after the country was shut out of markets in May 2011. The government issued a €750 million five-year bond at an average yield of 4,85% in June 2014 and a €1 billion 7-year bond in April 2015 at an average yield of 4%.

According to a statement issued by the Finance Ministry, the goal of the issue was to "further extend the interest-rate curve, mitigate refinancing risk through the easing of the debt-maturity timeline, improve relations with the investing public, and broaden the base of investors".

“The order book recorded offers over €3,35 billion, which is the largest sum of offers the Republic of Cyprus has seen since its return to international markets in 2014,” the statement said.

The Finance ministry said there had been high international demand, with investors from the UK forming over 60% of the final issue.

Fund managers and banks, it added, also featured strongly, comprising 52% and 23% of the final issue, respectively (Source: Cyprus Mail).
Fitch upgrades Cyprus economy to 'B+'

On 23 October, Fitch Ratings upgraded Cyprus’ long term foreign and local currency issuer default ratings (IDRs) to "B+" up from "B-" with a positive outlook.

The international rating agency says in a press release that the issue ratings on Cyprus’ senior unsecured foreign and local currency bonds have also been upgraded to "B+" from "B". The country ceiling has been raised to "BB+" from "BB-" and the short-term foreign currency IDR has been affirmed at "B".

"Cyprus has established a track record of fiscal consolidation and over-performance on its fiscal targets" the ratings agency says.

Fitch now projects "a deficit of 1% of GDP for 2015 and surpluses of 0,2% and 1% for 2016 and 2017, respectively." At the same time it forecasts the general government gross debt (GGGD) "to peak at less than 108% of GDP this year, before falling to around 100% in 2017". This, it points out, "compares with a peak of over 130% projected by Fitch in June 2013."

"At more than double the “B” median of 43% for 2015, the GGGD ratio is still high and reduces Cyprus' fiscal scope to absorb domestic or external shocks", it stated. Fitch also highlights that deposits have been broadly stable since capital controls were lifted, "although non-resident deposits (30% of total) declined temporarily in the run-up to the Greek crisis this summer."

"While direct financial links between Greek-owned subsidiary banks and Greece have been reduced significantly, the sector remains vulnerable to Greece mainly via investor confidence", it notes.

The ratings agency says that there are still significant risks to creditworthiness posed by Cyprus’ continued deep economic and financial adjustment. It considers that "the environment for banks remains challenging, in particular with regard to exceptionally weak asset quality."

"The stock of consolidated sector NPEs was 47,4% of gross loans in August, the highest of all Fitch-rated sovereigns. Unreserved problem loans for the sector (ie gross NPEs minus system-wide provisions) stood at EUR 18,8 billion, or 107% of GDP for the same period," it points out.

At the same time it adds that "implementation risks around banking reforms remain high as the process is dependent on the political will to confront debtors, which could wane in the run-up to parliamentary elections in May 2016" (Source: CNA).
GDP Growth Rate

Τhe GDP growth rate in real terms during the second quarter of 2015 is positive and estimated at +1,2% over the corresponding quarter of 2014. This is the second consecutive quarter during which the growth rate was positive. Based on seasonally and working day adjusted data, GDP growth rate in real terms is estimated at +0,8%.

Positive growth rates were recorded by the sectors of manufacturing, trade, hotels and restaurants, transport, communication, the professional, scientific and technical activities and administrative and support service activities as well as the financial service activities. Νegative growth rates were recorded by the sectors of construction, electricity as well as the activities of households as employers (Source: CYSTAT).
World Bank’s Doing Business report - Cyprus in the top ten for improved business practices

Cyprus is among the world’s top 10 countries that improved their business rules in the past year, according to the World Bank’s Doing Business report.

The island was among the top 10 economies that implemented at least three reforms, moving up 13 places to 47 in the overall 2016 Ease of Doing Business ranks out of 189 countries.

This also boosted Cyprus’ Distance from Frontier overall percentage to 71,78% compared with 67,37% last year.

According to the report Cyprus implemented reforms such as enforcement of contracts, resolving insolvency, getting electricity, getting credit, and paying taxes. The island also made resolving insolvency easier by introducing a reorganisation procedure and provisions to facilitate the continuation of a debtor’s business during insolvency proceedings. Introduction of the insolvency regime won Cyprus 34 positions to 17 (Source: Cyprus Mail).
Record increase in tourism arrivals

Tourist arrivals rose for the third consecutive month in September, marking the best ever result for this month based on available data.

In particular, the arrivals of tourists reached 360.899 in September 2015 compared to 316.602 in September 2014, recording an increase of 14%.

An increase of 32% was recorded in tourist arrivals from the United Kingdom (from 109.951 in September 2014 to 145.166 in September 2015), 99,9% increase from Israel (from 7.383 to 14.756), 34,7% increase from Germany (from 9.534 to 12.840) and 27,9% increase from Greece (from 9.382 to 12.001 this year) . On the other hand a decrease of 17,0% was recorded in tourist arrivals from Russia (75.391 in September 2015 compared to 90.866 in September 2014) and 5,9% decrease from Sweden (15.951 compared to 16.947 last year).

For the period January – September 2015 arrivals of tourists totaled 2.203.599 compared to 2.051.483 in the corresponding period of 2014, recording an increase of 7,4%.

It is also noteworthy that according to the Cyprus Tourism Organisation both in July and August 2015 tourist arrivals reached a record high (Source: CYSTAT).
Total property sales

According to the data published by the Cyprus Department of Lands and Surveys, property sales in Cyprus increased during the period January – September 2015 by 6%, compared to the corresponding period in 2014. It is also noted that during all months of 2015 up to September, with the exception of May and August, an increase was recorded in the number of the deed of sales.

In particular, deeds of sale increased during the nine months of 2015 from 3.328 to 3.530 compared to the same period in 2014. The increase was evident in Larnaca (36%) and Limassol (4%), whereas in the remaining cities a marginal decrease was recorded.

During the same period, 27,3% of total buyers (representing 965 deeds of sale) were non-Cypriots (Source: Cyprus Department of Lands and Surveys).
Building Permits

The number of building permits authorized by the municipal authorities and the district administration offices during July 2015 stood at 479. The total value of these permits reached €129,0 million and the total area 89,6 thousand square metres. These building permits provide for the construction of 337 dwelling units.

During the period January – July 2015, 2.974 building permits were issued, registering a decrease of 1,2% compared to the corresponding period of the previous year.

However, despite the reduction in the number of building permits, the total value of these permits increased by 24,6% and the total area by 19,9%. Moreover, the number of dwelling units recorded an increase of 21,8% (Source: CYSTAT).
Deposits and loans

According to the Central Bank of Cyprus, the total deposits in September 2015 exhibited a net increase of €255,6 million, compared with a net increase of €440,0 million in August 2015.

The annual growth rate stood at -0,7%, compared with -3,1% in August 2015. The outstanding amount of deposits reached €46,6 billion in September 2015.

Total loans in September 2015 exhibited a net decrease of €163,3 million, compared with a net decrease of €89,5 million in August 2015.

The annual growth rate stood at -2,5%, remaining unchanged as compared with August 2015. The outstanding amount of loans reached €61,2 billion in September 2015 (Source: Central Bank of Cyprus).
Non-Performing Loans

According to data of the Central Bank of Cyprus, the Non-Performing Loans (NPLs) at Cypriot banks remained stable in August 2015.

The NPLs decreased slightly in August to €27,38 billion from €27,39 billion in July, representing 47,77% of total loans.

Restructured loans amounted to €13,98 billion or 51,1%, of which €10,43 billion are still considered to be NPLs.

Non performing business loans reached 57,22% or €13,85 billion in August from a total of €24,22 billion, whereas household NPLs were at 55,82% or €12,73 billion in the eighth month of the year from a total of €22,81 billion.

Moreover, the Central Bank figures showed that the banks have recorded accumulated impairment loss amounting to €8,85 billion or about €32,33 billion of the total NPLs (Source CNA).
Companies registrations

According to new data from the Registrar of Companies and Official Receiver, applications for company registrations increased to 934 in September 2015 compared to 909 in September 2014, recording an increase of 2,8%.

As to the period January-September 2015, figures show a decrease of 3,2%, with companies registrations falling at 7.902 compared to 8.167 in the corresponding period of 2014 (Source: www.stockwatch.com.cy).
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