The Cypriot banks’ exposure to the UK, which seven months ago, voted in a referendum in favour of leaving the EU, amounted to €3.4bn which accounted for 5% of total assets on June 30, the central bank said in its annual financial stability report. Deposits held by Britons at Cypriot banks stood at €2.3bn or 4% of total deposits.

“Any change in the exchange rate of the sterling against the euro is expected to be mitigated because of the reverse impact that will cause on the assets and liabilities of the credit institutions,” the central bank said. “Cyprus, as an attractive destination for companies, anticipates to attract companies which will continue to be based in an EU-country” after Brexit.

The central bank said that a weaker sterling, which following the referendum already lost 13% of its value against the euro, could reduce the number of tourists from the UK, Cyprus’ largest source of incoming visitors as well as their spending.

In the first 11 months of 2016 arrivals rose 12% to 1,131,858, boosted partly by a combination of geopolitical tensions and increased flight connectivity. Total arrivals in the same period rose 20% to 3,098,0604, with revenue increasing at a lower rate. Tourism accounts for a quarter of the Cypriot economy, directly or indirectly.

Brexit “is expected to affect other economies,” the bank supervisor said. “The impact on the Cypriot economy and the Cypriot financial system is expected to be limited on the first sight”.

The central bank added that until the agreement is finalised which will govern the UK’s post-Brexit relations to the EU, any assessment ofthe expected impact can only be indicative.

Source: Cyprus Mail