Moody’s Investors Service said on Monday it has shifted its outlook on the Greek banking system from stable to positive on expectations of an improvement in the banks’ funding and asset risk over next 12 to 18 months.
In a report focusing on the local credit sector and its nonperforming loans, Moody’s said it expects the Greek economy to maintain its positive momentum over the outlook period, provided that Athens remains focused on structural reforms to attract more foreign investment.
The rating agency was in line with most Greek and European authorities and observers in its projections for 2 percent economic growth this year and 2.2 percent in 2019, supported by strong increases in exports and services, particularly tourism.
Moody’s expects bad loans to remain elevated, but banks will likely meet the targets agreed with the eurozone regulator to reduce their nonperforming exposures (NPEs) to around 35 percent of total loans by the end of 2019.
It argued that lenders are progressing “amid an improving but still challenging operating environment.”
Late last week Moody’s upgraded Cyprus’s sovereign rating from Ba3 to Ba2 – i.e. two notches below investment grade – citing the recovery of the island’s credit system following the liquidation of Cyprus Cooperative Bank, as well as the island republic’s strong growth and budget surplus.