Credit rating agency Moody's said that a sustained increase in building activity in Cyprus could indicate a boost for the real estate and banking sectors but warned that time is needed for the lenders to clean up their balance sheets.
Recent data shows that the number of building permits in the first four months of the year rose 8% to 1,861, the highest level since the country's 2013 banking crisis.
“Although Cypriot banks continue to face significant asset quality challenges, a sustained increase in demand for building permits would be a credit-positive indication of an improving operating environment for the construction and real estate industries,” the agency said in a report released earlier this week.
Moody’s said it expects that “recovering demand for new real estate and overall improvement in the sector will increase construction companies’ cash flows, with positive implications on banks’ asset quality in the construction and real estate sectors, which constituted approximately 18 per cent of gross loans as of March 2017.”
The agency added, however, that it will take time for Cypriot banks to rehabilitate their balance sheets because of the long cure periods for restructured loans before they are reclassified as performing, and the substantial volumes of distressed debt, with system-wide NPEs at 45 per cent of gross loans as of March 2017.