| NICOSIA (Reuters) - Standard & Poor's Ratings Services on Wednesday raised its outlook on Cyprus to stable from negative, saying it expects the troubled government to agree to the terms of a bailout, averting any immediate risk of a sovereign default. Cyprus, one of the euro zone's smallest economies, has been forced to wind down one of its largest banks and slap losses on uninsured deposits in a second in order to qualify for a 10 billion euro (8.53 billion pounds) lifeline from the European Union and the International Monetary Fund. S&P rates the island CCC. It said it would likely lower the rating if, contrary to its expectations, the Cypriot government rejected the bailout terms. It would consider raising the rating if the economy were to stabilise sooner and at higher levels. "Our baseline expectation continues to be that Cyprus will remain a member of the euro zone. Nevertheless, it seems likely that recently imposed capital controls will remain, in some form, to protect Cyprus' banks from renewed deposit flight," S&P said. Cypriot authorities imposed capital restrictions on banks on March 28, introducing a vetting process for payments over 25,000 euros daily by businesses and setting a 300 euro cash withdrawal limit for individuals. Standard and Poor's said it expected Cyprus's economy to shrink 20 percent from 2013 to 2016. Expected downsizing in the public and financial services sector, and in the banking system would likely lead to significant job losses, it said. Cyprus plans to raise 10.6 billion euros from winding down Laiki Bank, losses to junior bondholders, and a deposit-for-equity swap for uninsured deposits in the Bank of Cyprus, a draft assessment of Cypriot financing needs prepared by the European Commission showed. It also plans to sell 400 million euros' worth of reserves to finance part of its bailout. S&P said that it understood that once terms were approved by the Cypriot government, the ECB would once again accept Cypriot government securities as collateral in exchange for its credit support to Cyprus's financial institutions. "We view this as an important normalisation of monetary support for Cyprus's challenged financial sector," it said. Under the terms of the bailout deal, Cyprus's economy is expected to contract 8.7 percent this year, continue to shrink in 2014 and return to marginal growth in 2015, documents seen by Reuters show. |
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