Return to growth in 2015, capital controls to be lifted

Cyprus is expected to return to growth next year, with the economy expected to expand for the first time in four years by 0.5%, Central Bank chief Chrystalla Georghadji told MPs.

The centralbanker was optimistic that the recovery was at a faster pace than forecast and that with the banking system now seeming to have stabilised, the final capital controls imposed as part of last-years bailout fracas, will be lifted “soon”.

She told the House Finance Committee hearing that the European Commission’s revised forecast of a 2.8% contraction this year was “more realistic”, up from earlier estimates of a 3.2% contraction.

Georghadji told MPs that her optimism is based on the fact that the recovery so farhas been faster and results have been better than initially projected.

Noting that the local banks were still not providing sufficient liquidity to the real economy, Georghadji said that the Central Bank has a strategy in line with ECB measures to encourage lenders to provide credit in a sustainable way and provided borrowers can repay their loans.

She said that the Central Bank focus now is on the restructuring of loans in a reasonable, just and sustainable way so that the ratio of non-performing loans (NPLs) in banks’ book will be reduced. This, she added, will have a positive effect on interest rates and the economic climate as a whole to the benefit of both households and businesses.

Georghadji said she will be monitoring closely the situation with big borrowers and will be checking what measures the banks have taken to recover, especially as the rate of restructurings so far has not been to a “satisfactory” degree.