Cyprus’s economy is adjusting following the 2013 recession, which was “not as severe as anticipated”, the International Monetary Fund (IMF) has said.
“Signs of stabilisation are emerging in the banking sector,” said the IMF in a report.
Cyprus agreed to a 10bn-euro ($13.8bn; £8.3bn) bailout with the European Union and the IMF last year.
Cyprus’s second-largest lender – Laiki Bank – was closed down.
Although the recession was not as severe as expected, there may be more pain to come, warned the IMF.
“The outlook remains challenging, with rising unemployment, falling credit, and increasing non-performing loans,” it said.
At Cyprus’s banks, non-performing loans – ones where payments have been missed – reached 50% of all loans, worth 22bn euros.
Ukraine crisis
Cyprus had to seize money from big savers, many of them Russian, as a condition of its bailout and capital controls are still in force.
The current crisis in Ukraine may also add to the country’s woes, the IMF said.
“The Ukraine crisis may lead to capital flight from non-resident depositors of foreign banks in Cyprus, which may affect the business service sector.”
Cyprus was nearly bankrupted after Greece’s financial crisis in 2010.
The country’s banks were hit heavily but its government did not have the funds to issue a bailout.
