Cyprus’ Central Bank (CBC) Governor Chrystalla Georghadji said that the country’s economic recovery will continue in 2017 with encouraging prospects both for the banking sector and the government’s financial position.
At a meeting of the Parliament’s Finance Committee on Thursday, she added that the best way to address the two key issues of the economy, unemployment and non-performing loans (NPLs) is structural reforms and growth through more investment.
Speaking before the Committee, which discussed CBC’s draft budget for 2017, Georghadji pointed out that growth in the economy is sustainable because there are private investments, mainly in tourism, hotels, marinas and casinos.
In relation to the problem of non-performing loans, she said that there is still a lot of work to be done to resolve the main problem of the banks and that there is no room for easing that effort.
At the same time, she expressed satisfaction with the fact that the Cypriot banks have been able to successfully meet the strictest regulatory guidelines and structural reforms in the past three years, correcting fundamental weaknesses in the financial system, which, as she said, was the key to improve significantly the trust and confidence in the sector.
“Although significant problems remain, such as the high level of non-performing loans (49%), high public debt (109.6%) and unemployment (12.1%), the outlook is encouraging both for the banking sector, which is now on a much healthier basis, but also for the financial situation, which is also supported by a return to growth and continuous reduction in unemployment, ” she said.
Improved robustness of the local economy and the banking sector
She added that the improved robustness of the local economy and the banking sector is evident in the significant reduction in the yields of government bonds, the upgrade of the economy by the international rating agencies, the significant reduction of the Emergency Liquidity Assistance (ELA) and the significant investor interest as a result of the participation of foreign investors in the banking and other sectors.
Georghadji said that for the entire 2016, GDP is expected to grow by 2.7% and continue to grow at the same level in 2017 and 2018, mainly reflecting strong private consumption and investment. She also noted that in the next CBC forecasts in December 2016, the GDP growth rate for 2016 will be revised slightly upwards.
“The economic momentum is expected to further strengthen, benefiting from the improvements in the competitiveness that have occurred in the recent years,” said the Governor of the CBC.
In relation to the level of NPLs, Georghadji said it continues to be the main problem affecting the banking sector, despite the progress made in recent months, stressing that “there is a lot of work to be done to achieve the solution of the problem and there is no room for easing the effort.
She added, however, that the banks have now completed the establishment and staffing of special units for the management of NPLs and have developed policies and internal procedures to enable them to cope with the problem.
The Governor noted that NPLs for domestic operations fell to €24.5 billion by the end of August 2016, compared to €27.8 billion at the end of January 2015 and €26.9 billion at the end of 2015.
Gradual return of the confidence of depositors in the banking system
She also said that deposit inflows recorded in 2015 suggest a gradual return of the confidence of depositors in the banking system. At the same time she said there is a limited increase in new loans.
Replying to questions by MPs, Georghadji admitted that there is a “weak” and not “a great” improvement in terms of NPLs, and noted that this outcome is the result of delays in the enactment of those laws that would give tools to the banks for restructurings.
Referring to the state’s gold reserves, Georghadji said that 75% of the gold is kept in a very reliable bank abroad, and its total value is approximately €550 million.
She also referred to a bill that would allow the Personnel Committee of the CBC to make decisions, even without the appointment of a second Executive Board member, saying that its rejection by the parliament does not allow the Personnel Committee to convene and do any work.
Regarding loans in Swiss francs, Georghadji said that € 109 million loans were deleted or repaid, while €309 million were converted in euros or sterling.
Source: CNA
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