Fitch does not rule out further mergers in the Cypriot banking sector, as the director of financial institutions of the agency, Julien Grandjean, points out.

In an interview with StockWatch, the Fitch official notes that no major consolidation moves are expected in Cyprus, given that Bank of Cyprus and Hellenic Bank are already dominant players on the island with large market shares and RCB surrendered its banking license.

He emphasizes, however, that "we could see further consolidation between small players or subsidiaries of foreign banks exiting the market or merging their activities with Cypriot banks".

In his interview with StockWatch, he does not rule out the need for new provisions due to the energy crisis and inflation.

Inflation is a financial risk

Regarding the economy and rising inflation, the head of the sovereign sector of the agency, Kit Yeung, says that energy inflation, if it remains persistently high, is a fiscal risk for the government of Cyprus, if further support measures are required.

He notes that Cyprus does not import natural gas, so it is not directly exposed to the risk of gas shortages facing Europe this winter.

However, he stresses, “Cyprus is entirely dependent on imports of oil and oil products for electricity generation, which makes inflation and terms of trade highly sensitive to changes in global oil prices. Energy inflation, if it remains persistently high, is a fiscal risk for the government if further support measures are required."

Asked to comment on the fact that the agency does not give a positive outlook for the economy, despite enhanced growth, she notes that although the Cypriot economy has had a strong recovery after the pandemic and public finances have proven resilient, Cyprus' small and highly open economy , remains vulnerable to a deterioration in the outlook for eurozone growth in 2023.

In addition, he underlines, there are still uncertainties related to Cyprus' high exposure to Russia, through its investment and tourism ties.

In their interview with StockWatch, the analysts refer to the necessity of promoting reforms such as the judicial system but also the access of small and medium enterprises to financing.