Moody’s Anouncement – Cypriot Banks to benefit from a continued recovery in property prices

Moody’s Investors Service commented on February 20th, 2017 that Cypriot banks would benefit from a sustainable recovery in the Cyprus property market. The comment followed a release by the Central Bank of Cyprus showing a rise in the Cyprus Property Index, the first rise in seven years.

According to the agency, the recovery of property prices would improve the asset quality of Cypriot banks, which is a “credit positive”.

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 stabilize 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,” Moody`s said, adding although the improving economy will support domestic demand, households’ large debt loads (loans to households were 116% of GDP as of December 2016) will continue to constrain demand growth.

The three largest Cypriot banks, Bank of Cyprus, Cooperative Central Bank, Hellenic Bank “will benefit from an improved real estate market,” Moody’s said adding that an improved real estate market would mostly benefit Bank of Cyprus and the Cooperative Central Bank (CCB), the agency added.