Category Archives: Business News

Cyprus Central Bank: Economy to grow with a 3% rate

The Cypriot economy will register a 3% growth rate in the next three years, Cyprus Central Bank said in its December 2016 economic bulletin.

The CBC said the Cypriot GDP will grow by 2.8% in 2016 and 2017 whereas output will accelerate to 3.1% and 3.0% in 2018 and 2019, mainly underpinned by tourism, private consumption increase, exports and the observed increase in new loan contracts.

“Given the positive momentum, the economy will register further recovery in the years 2017, 2018 and 2019 in the order of 2.8%, 3.1% and 3.0 respectively,” the CBC said.

The CBC noted that outlook risk are balanced. Downside risks are associated with a possible deterioration in external demand for services due to the worsened economic situation in the UK due to brexit, a possible deterioration in domestic credit conditions and a slower progress in the reduction of non-performing loans.

It adds the GDP growth rate may be affected positively if growth in new loans accelerates further assisting further recovery in private investments.
According to the CBC, “the improvement in the economic situation of the country and its banking sector is reflected in the more gradual upgrades by rating agencies and the sizeable reduction in the reliance on ECB emergency liquidity funding.”

On the banking system, the CBC notes the sector maintains the recovery course marked by continued deleveraging, progress in new loans, increase in deposits inflows.

“Depositor confidence both foreign and domestic to the Cypriot banking system has been restored to a significant extent with domestic private sector deposits registering positive annual change,” the CBC added.

The CBC warns however that despite positive developments, the banking sector continue to face with the particularly high level of non-performing loans, although significant progress has been achieved.

“With reforms in the legal framework acting as an incentive both to lenders and borrowers to accelerate viable restructurings, the first positive signs are already visible with the latest figures showing a continued reduction to the NPLs since February 2015,” the CBC said.
According to CBC, the stock of NPLs have been reduced by €2.8 billion since December 2014.

“A successful and comprehensive tackling of this problem is expected to restore investor confidence and to reduce the further deterioration in the banks` profitability and capital with positive effects both on the financial system and the economy in general.” the CBC noted.

Deflation continues

Cyprus rate of inflation declined to -0.3% year on year in December 2016 remaining in negative territory for 42 consecutive months, data released on Wednesday by the Cyprus Statistical Service (Cystat) show.

For the period between January and December 2016, inflation is also decreased by 1.4% compared to the corresponding period of the previous year, CyStat added.

Negative inflation was most affected by the reduction in energy prices that dropped by 4.1% compared with December 2015.

Compared with November 2016, the Consumer Price Index for December 2016, increased by 0.45 units to 99.61 units from 99.16, mainly due to agricultural goods prices that recorded an increase of 5.7%.


Real estate sales up 43% in 2016

Real estate sales rose by 43% in 2016, figures released by the Department of Lands and Surveys (DLS) show.

Cyprus-wide sale contracts submitted to the DLS reached 7,013 in 2016 compared with 4,952 in 2015. The data exclude sales to foreigners to be released at a later stage.

December sale contracts spiked 121% reaching 1,134 in 2016 from 513 in December 2015.

Sale contracts submitted in Limassol increased by 59% reaching 2,496 in 2016 compared with 1,556 in 2015.

In Paphos, sale contracts in 2016 amounted to 1,740 from 1,241 in 2015 rising by 40% year on year.

Sale contacts submitted to the Nicosia DLS district office amounted to 1,031 from 749 in 2015 marking an increase of 38%.

In Famagusta, sale contracts rose by 35% amounting to 435 in 2016 from 324 in 2015.

Sale contracts in Larnaca reached 1,360 in 2016 from 1,072 in 2015 recording an increase of 27%.


New arrival record for Cyprus airports

There was a significant increase in the number of passengers processed through Larnaka and Pafos airports and a further boost to Cyprus’ connectivity, with the entrance of new airlines and the introduction of new routes, according to Hermes Airports’ official data for 2016.

According to a statement, a total of 8,974,163 passengers travelled through the airports in 2016, 1,365,000 more than in 2015, recording an 18% increase. There was a 24.5% rise at Larnaka airport and 2.6% at Pafos airport. According to Hermes Airports’ data, the most important hikes were recorded by the markets of Russia (+47%), the United Kingdom (+13%), Greece (+14.5%) and Israel (+47%).

Moreover, the Cypriot airports’ network was further enhanced by the operation of 10 new airlines and the introduction of 21 new routes, thus boosting the island’s connectivity. The new airlines, Cobalt Air, Pobeda, TUS Airways, Ellinair,AirBerlin, AzurAir, YanAir, WindRose, AlitaliaandIsrair,carried some 428,000 passengers, while an increase in the number of flights to existing routes led to an additional 919,000 passengers.

Commenting on the numbers, Hermes Airports’ Chief Executive Officer Eleni Kaloyirou said that 2016 ended on a high note. These results, she noted, “have a direct positive impact on Cyprus’ economy and tourism”. She stressed, however, that “they do not allow for complacency” and that “the coordinated efforts by Hermes as well as other tourism stakeholders must continue and intensify”. If this is the case, Ms Kaloyirou estimated that this upward trend will continue in 2017.



Government posts €66 mln surplus

General government accounts posted a surplus of €65,5 million for the period of January – November 2016, compared to a surplus of €11.5 million in the corresponding period of 2015, owing to a reduced balance deficit.

According to data released on Monday by the Finance Ministry, Cyprus` primary surplus for the eleven months of 2016 amounted to €509 million compared with €472 in the corresponding period of 2015.

The budget deficit for January – November 2016 declined to 4.8 million, representing a reduction of €169 million compared with the deficit of the period in 2015.

Total revenue amounted to €5.76 billion from €5.63 billion in January – November 2015. The increase was mainly due to indirect taxes which increased by €138 million reaching €2.36 billion from €2.22 billion in the period of January – November 2015.

Revenue from VAT amounted to €1.42 billion in January – November from €1.33 in the corresponding period of 2015, whereas direct taxes (income and corporate tax) declined by €13 million to €1.73 billion in the first eleven months of 2016 compared with €1.75 in the corresponding period of 2015.

Social security contributions increased by €45 million reaching €936 million in January – November 2016 compared with €892 million in January – November 2015.

Total expenditure declined by €42 million to €5.76 billion in the first eleven months of 2016 from €5.81 billion in the corresponding period of 2015, mainly owing to the reduction in current transfers which declined to €1.29 billion from €1.35 billion in January – November 2015.

Wages and salaries increased by €18 million reaching €1.45 billion reaching €1.45 billion in January – November 2016 from €1.43 billion in the same period of 2015.

Pensions declined by €23 million to €492 million in January – November 2016 from €515 million in the same period of 2015.

Debt servicing expenditure for January – November 2016 reached €461 million compared with €500 million in the same period of 2015.



Cyprus Central Bank: Banks face 3 major challenges

The reduction of the high stock of non-performing exposures (NPEs), the negative interest environment which compresses the banks` profitability as well as the forthcoming amendments in the regulatory framework, consist the three main challenges facing the banking system, the Central Bank of Cyprus said in a report released on Wednesday.

According to the CBC`s 2016 Financial Stability Report, NPEs by June 2016 declined to €25.3 billion representing 48.7% of the total loan book of the Cyprus banking system, reduced by €2.3 billion year on year.

The CBC notes that loan restructuring has gathered pace in the last year, while NPEs marked a reduction of €1.1 billion in the three months from March until June 2016.

However despite the “marked progress,” the CBC notes that “dealing with the high level of NPEs remains the basic priority for the restoration confidence and the return to growth.”

The CBC also adds “the effective implementation of the measures taken for this purpose is indispensable to reduce the NPEs and to stabilise the banking system.”

According to the CBC, total loans in June 2016 amounted to 238.2% of the Cypriot GDP, marking a reduction of 12 percentage points compared with the corresponding period of 2015.

Total private debt in June 2016 amounted to 282.4% of GDP (including special purpose vehicles) with non-financial institutions debt amounting to 155.2% of GDP and household debt 127.2%. Total debt including public debt amounted to 391.4% of GDP.

CBC notes that banks have increased liquidity levels due to the rising deposits, the increase in capital adequacy ratios, as well as provisions.

However, the Cypriot banking regulator points out that low interest rates, combined with the low provision of new credit represents a challenge to the banking sector`s profitability.
As ECB imposed negative rate on excessive liquidity, banks face a further challenge due to the rise of deposits, while the low level of new loans challenges their income, as 75% of the banks` income came from interest income.

“The credit institutions` profitability may, therefore, decline further if the banks are not able to offset the reduction of profitability with a rise in new lending and/or with reducing credit risk.”
Furthermore, the banks face further challenges from the changing supervisory environment, a new set of regulatory and supervisory changes from the Basel Committee on banking supervision which will increase the minimum capital requirements. Moreover new supervisory settings such as IFRS 9 will be implemented that imposes provisioning based on expected losses.

“The introduction of the above issues is expected to bring about significant increase in the bank`s funding costs,” the CBC points out, noting that low interest rates is expected also to affect the profitability of the insurance sector.


Sehnaoui: Vote to Cyprus economy

Maurice Sehnaoui, the major shareholder of Pireaus Bank, described on Thursday his investment in Piraeus Bank Cyprus as a vote of confidence in the Cypriot economy.

Sehnaoui, heading a delegation of the group of investors who participated in the transaction, which was completed last December, met with Finance Minister Harris Georgiades who assured him of the government`s political will to secure a safe, stable and attractive economic environment and to promote all offered investment opportunities in Cyprus.

At the end of Decembcer, the Cyprus Central Bank and the ECB approved a participation agreement of Holding M. Sehnaoui SAL (“HMS”) as the main investor, along with a number of other investors with stakes, into the share capital of Piraeus Bank Cyprus (PBC). HMS has acquired a direct stake in PBC, reducing the Piraeus Group`s participation in PBC to 17.7%

Describing the transaction as extremely important for Cyprus, Georgiades said in his remarks to the press that the investors have highlighted the prospects and opportunities presented by Cyprus.

He added that a reunification of Cyprus offers additional significant opportunities, adding that the investors have made it clear that investing in Cyprus, divided since the 1974 Turkish invasion, is not based and does not require a solution to the Cyprus problem.

“On my part I conveyed the government`s clear commitment to continue the effort and safeguard a stable, secure and attractive economic environment which would enable the utilisation of investment opportunities,” the Minister stressed.

On his part, Sehnaoui noted that he considers Cyprus and the Cypriots as family and stated that the investors and he personally “think that now there is big opportunity for investments in Cyprus, especially following the deep three-year financial crisis, which saw banks wound down and almost half of deposits over €100,000 in Bank of Cyprus being converted to equity to recapitalise the island`s largest lender.

“After the big crisis the way Cyprus survived is fantastic. If we look at Greece, we can see the difference. Cyprus survived and perhaps that made Cyprus stronger,” he said recalling that the Cypriot GDP grew by 3% in one of Europe`s highest growth rate.

He also pointed out the strength of the tourist sector and the continuation of the financial services sector, recalling that everybody believed in the beginning of the crisis that “everything would collapse.”

“Cyprus is the star of the Mediterranean sea and that is why we invest in it,” he added.

Asked if a possible merger of Piraeus Bank Cyprus with USB bank is under consideration, Sehnaoui said the two banks could collaborate.

Recalling that he is a minor stake holder in USB Bank, Sehnaoui said “perhaps they will collaborate, perhaps they will make competition, I don`t feel a conflict of interest at all, it is a minimum, there are two banks, they are not so big, the market is large enough and I think they will collaborate easily because I can be the link.”


BoC: Issue of €250 million Tier 2 Notes

The Bank of Cyprus announced on Thursday that it successfully launched and priced an issue of €250 million unsecured and subordinated Tier 2 capital notes, under the Bank’s EMTN Programme. It is expected that settlement will occur on 19 January 2017.

“Credit Suisse and HSBC acted as Global Coordinators and Joint Bookrunners for the issue, and BofA Merrill Lynch and Deutsche Bank acted as Joint Bookrunners,” a BoC press release says.

The notes, the press release adds, “were priced at par with a coupon of 9.25%”. They mature on January 19, 2027 but the bank will “have the option to redeem the Notes early on 19 January 2022, subject to applicable regulatory consents.”

The press release continues to inform that “the Notes will be listed on the Luxembourg Stock Exchange’s Euro MTF market.”

“The issuance of the notes is part of the bank’s strategy to optimise the level and composition of its capital and liabilities, with a positive impact of approximately 130 basis points[1] on the bank’s total capital ratio,” it says.

Chief Executive Officer of Bank of Cyprus Group John Patrick Hourican said that “the bank’s successful return to the debt capital markets demonstrates the confidence of international investors in the bank.”

This, he concluded, “is a further step in the normalisation of the bank’s funding structure, following the recent full repayment of Emergency Liquidity Assistance (ELA) funding, and is another significant milestone in the bank’s journey back to strength.”