The rating agency said the outlooks for the two banks’ Long-Term IDRs are stable.

"These rating actions reflect Fitch’s expectation that some improvement in the economic environment in Cyprus and the implementation of reforms to its insolvency framework will support domestic banks’ efforts to manage and reduce very high non-performing loan volumes and enhance recoveries, primarily via forbearance,” the rating agency said in its announcement.

"Investor confidence is also improving following the completion of the international bailout programme in March 2016 and customer deposits in the system have remained broadly stable since capital controls were fully lifted in April 2015,” it added.

Fitch noted that "nevertheless these banks’ ratings remain deeply sub-investment grade, in particular because their capitalisation is still highly vulnerable to their very weak asset quality. Their internal capital generation capacity is also weak given that modest pre-impairment operating profits are eroded by impairment charges”.

Source: Famagusta Gazette