Moody\\\'s maintains Cyprus ratings

NCOSIA, Aug 7 (Xinhua): Moody's international ratings agency has maintained Cyprus's Caa3 ratings with a positive outlook but warned of a default risk in a report on Wednesday.
Despite the better than expected performance of the Cypriot economy, Moody's said its Cyprus ratings reflected the "ongoing credit risks relating to the sustainability of the country's public finances, as well as the resulting elevated risk of default in the medium-term."
Moody's said the challenge facing Cyprus is providing help to the banks to deal with a very high percentage of non-performing loans which average 45 per cent of the total loan books.
The warning seemed to reflect concerns over the ability of commercial banks to reclaim their dues as the government and opposition parties are engaged in consultations over the terms of the repossession of mortgaged properties.
Opposition parties, which have a majority in parliament, have given warning that they will vote down proposed legislation on property repossession unless provisions are included offering protection to properties which are the primary residence of debtors of the business premises of small enterprises.
Such provisions would be unacceptable to the troika -- the teams of technocrats from the European Commission the European Central Bank and the International Monetary Fund representing Cyprus's international lenders -- which has made the repossession legislation a precondition for the release of the next bailout tranche.
The government has warned that without the 436 million euros (US$583 million) instalment due in early September it will find itself short of funds finance its operations beyond October.
The government will face a critical challenge on Monday when two parliamentary committees are scheduled to examine in depth the repossession legislation prior to its debate in a plenary session late in August.
The Cypriot banking system was "resolved" as part of a 10-billion euro bailout in March, 2013. The eastern Mediterranean island's main lender was forced to convert 47.5 per cent of large deposits into stock to recapitalise and also sell at a discount price its lucrative operations in Greece.
Moody's also said it regards the banking sector risk as Very High in Cyprus primarily because of the low baseline credit assessments assigned to rated banks in the system and also because of the significant size of the banking sector, as defined by total assets as a percentage of GDP, which stood at around 485 per cent of GDP in May 2014.
On the fiscal side, Moody's said in its report that there will not be any meaningful economic recovery before 2016, though economic contraction will be shallower than originally projected this year.
 "While the 2013 economic contraction was more benign than expected, the recession could be more protracted in the context of high unemployment, reduction in wages, erosion of savings, and the restructuring of the banking sector," Moody's said.