Cyprus will emerge stronger from the recent downturn, says Governor of CB

Cyprus will emerge stronger from the recent downturn, says Governor of CB

Cyprus will slowly but steadily emerge stronger from the recent downturn, the Governor of the Central Bank of Cyprus Chrystalla Georghadji believes.

Speaking at the 2015 Cyprus Investors’ Summit, organized by the Cyprus Investment Promotion Agency (CIPA), Georghadji said that a series of reforms have taken place following the unprecedented and challenging events our banking system and the wider economy faced during 2013.

She added that important steps towards fully restoring confidence and stability have been taken, in cooperation with our European partners (the ECB, the IMF, and the European Commission) and the four most significant banks (Bank of Cyprus, Cooperative Central Bank, Hellenic Bank and Russian Commericial Bank) are now directly supervised by the European Central Bank.

‘The Cypriot economy and society in general have exhibited considerable flexibility and endurance, keeping the country resilient even after the recent dramatic developments. In particular, while Troika in its fifth assessment of the Cyprus economic adjustment programme last July, predicted a real GDP decline of approximately 4.2% for 2014, the most recent revised forecasts by the IMF and the European Commission project a real GDP decline of 3.2% and 2.8%, respectively. Even better, according to the latest available data, the Central Bank of Cyprus expects a decline of around 2.5%. For 2015 the economy is expected to do better and rebound with a marginal positive growth`, she noted.

The developments regarding public finances, she said, were significantly better than expected compared to past estimates by our international lenders. `In its fifth assessment Troika forecasts a budget deficit of 4.7% of GDP for 2014. However, most recent estimates suggest that the budget deficit will be substantially smaller. This revision enables a relatively more optimistic fiscal outlook for 2015, provided of course that the consistent and prudent implementation of the state budget continues`, she added.

It is important for the wider economy and public finances, Georghadji said, that the €1 billion buffer provided within the €10 billion Troika programme will not be needed to cover any capital shortfalls in the banking system.

The improving capital position of the banks, she noted, provides the opportunity to either reduce the lending required from the programme and the national debt by €1 billion, or consider whether this may be allocated to other areas.

`A further positive development is the high level of foreign investment injected across our banking sector by renowned international investors and institutions. In the past 18 months, experienced foreign investors have participated with significant funds and have taken substantial positions in several banks incorporated in Cyprus`, she added.

These capital injections, she said, constitute some of the largest foreign investments seen in the history of the Cypriot economy.

`This provides encouragement and affirm indication that the confidence of the international community is returning to the Cyprus banking sector. It is pleasing to see that the recent restructuring work and reforms made in the sector and the wider economy are already delivering promising results, and the sector is coming out of this difficult juncture in a strong and healthier condition`, she stressed.
The CB Governor said that restructuring and cleaning up a bank’s balance sheet is not easy, and market conditions remain challenging.

However, she noted, this also provides opportunities. `We remain fully committed to the implementation of the programme agreed with the international lenders and in re-establishing a thriving banking sector that can effectively meet the needs of businesses and households`, she added.

“I remain positive that the Cyprus economy will come out stronger from the current crisis. Cyprus is a European Union member state; it has a strategic location between three continents, well performing industries such as tourism and shipping and is expecting further investment in the energy sector. Moreover, it maintains a strong financial services infrastructure, experience and know-how`, she concluded.