“The industry’s revival is having positive ripple effects on local small and midsize enterprises and is contributing to a decline in unemployment to 12% as of May from 15.3% in May 2015 and a peak of 16.7% in October 2013,” Moody’s said in a comment emailed on Thursday.

Non-performing loans, as per the European Banking Authority definition, extended to enterprises in the hospitality industry fell 21% to €1.2bn in March compared with May 2014, Moody’s said. “However, similar to total problem loans, non-performing exposures in accommodation and food service activities remain at high levels, with the ratio of non-performing exposures to gross loans declining to 56% in March 2016 from 63% a year earlier,” the rating company added.

Tourist arrivals rose 21% to 1,255,240 in the first six months of the year compared with the respective period of 2015. Revenue rose in January to April 12% to €285.5m. Directly or indirectly, tourism accounts for roughly one quarter of Cyprus’ economy.

“The growth in tourism revenues suggests further improvement in Cypriot banks’ asset quality, a credit positive even though asset quality metrics will remain weak for a prolonged period given banks’ high stock of problem loans,” Moody’s said.

The rating company said that the sale of Kermia Hotels Ltd and adjacent land by Bank of Cyprus, the island’s largest bank, on July 4, for a total of €26.5m which generated a €2m profit for the bank, is indicative of the opportunities created by the tourism industry’s improved performance.

While pre-bookings for 2017 suggest that Cyprus’ tourism industry will continue its strong performance, partly caused by geopolitical events in the wider region, the weaker British sterling vis-à-vis the euro, sparked by the June 23 Brexit referendum, may have an adverse effect on Cypriot tourist enterprises and subsequently banks.

The UK is Cyprus’ largest source of incoming tourist.

Source: Cyprus Mail