Moody’s: Banks would benefit from Cyprus property recovery
- Feb 19, 2017
- 2 min read
Moody’s expects that the Cyprus property market and prices will broadly stabilize over the coming quarters and that demand for Cyprus property will increase gradually from low levels.
The Cyprus property index, compiled by the Central Bank of Cyprus, recorded a quarterly increase in the third quarter of 2016, for the first time since in 2010. Although Cyprus banks continue to face significant asset quality challenges, a sustained reversal in the prices for apartments and houses would improve asset quality, a credit positive, Moody’s said in its Credit Outlook bulletin, issued on Monday.
As the agency notes, recovering Cyprus property prices would support the construction industry, mortgage repayments from strategic defaulters who have the capacity but are unwilling to repay and allow banks to offload Cyprus real estate taken on their balance sheet through debt-to-asset swaps. “We expect Cyprus property prices to broadly stabilise over the coming quarters, and the demand for property to increase gradually from low levels. Real estate sales totalled 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. An improved real estate market would mostly benefit Bank of Cyprus and the Cooperative Central Bank (CCB), the agency added. Recalling that through debt-to-asset swaps, BOC acquired €1.3 billion of properties on its balance sheet, which constitute 6% of its total assets, the largest share of any Cypriot bank, the agency said that a gradually recovering property market would facilitate its sale of these assets and reduce the likelihood of the bank recording losses. Furthermore, the CCB will also benefit because residential mortgages amount to 37% of its gross loans, with 50% of these loans classified as nonperforming exposures as per the European Banking Authority’s broad definition.
However, the agency pointed out that notwithstanding the improving Cyprus real estate market, “Cypriot banks’ balance-sheet rehabilitation will be long because of the long cure periods for restructured loans before they are reclassified as performing and substantial distressed debt that has not been restructured yet.”
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