cyprus1According to the Moody’s rating agency, Cyprus has an ‘elevated risk of default in the medium-term’ with non-performing loans (NPLs) remaining as a main challenge. Moody’s said that even though the restructuring process of the banking sector is going well, the actions that the authorities and Troika have identified to lower the high NPL levels have not yet been fully implemented. Moody’s Investors Service said Cyprus’ CAA3 rating with a positive outlook 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 considers it unlikely that there will be any meaningful economic recovery before 2016. ‘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,’ it said. Moody’s also regards banking sector risk in Cyprus as very high 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. More about Cyprus on our website.