DBRS on June 2 upgraded Cyprus' long-term foreign- and local-currency issuer ratings to BB (low) from B and changed the trend to stable from positive.
The upgrade is based on Cyprus' strong fiscal results over the past two years and declining imbalances in the private sector, DBRS said, adding that the headline deficit has shifted to surplus and the primary fiscal surplus has increased. Meanwhile, the country has made progress in the resolution of non-performing loans, with both household and non-financial corporate debt declining, the rating agency said.
The stable trend takes into account substantial challenges for the country, despite the economic recovery, the rating agency said. Bad loans, although down from their peak, remain "very high" and continue to weigh on the performance of the banking sector, and private and public sector debt is still high, DBRS highlighted.
Meanwhile, the rating agency confirmed Cyprus' short-term foreign- and local-currency issuer ratings at R-4 with a stable trend.