S&P Global Ratings on Thursday revised the outlook of the Bank of Cyprus to positive from stable in Cyprus, citing lower economic risk for banks operating in the country and a more supportive macroeconomic environment.

The rating agency confirmed the bank’s long-term and short-term credit ratings at BBB- and A-3, respectively, reflecting its view that conditions for the Cypriot banking sector are improving.

The revision of the outlook mainly reflects S&P’s assessment that economic risks for banks operating in Cyprus are easing, according to the agency.

It added that the Bank of Cyprus could benefit from a more supportive economic environment as growth remains strong.

S&P said that the robust economic growth recorded in recent years is expected to support the creditworthiness of the private sector in Cyprus.

“The economy has benefited from a thriving services sector particularly tourism and information, technology and communications services as a result of corporate relocations to Cyprus,” the rating agency said.

It also highlighted that the Cypriot economy has demonstrated resilience to a range of challenges, including regional conflicts and trade wars.

“We believe that the creditworthiness of the private sector is strengthening, even if we recognise that Cyprus’ high GDP per capita based on the US dollar could overstate the average prosperity of domestic residents due to the relatively high share of foreign investment in the country,” S&P added.

The agency expects this positive trend to continue, supported by labour market conditions, strong growth in real incomes and significant investments, including funding from the Next Generation EU programme.

However, S&P reiterated its view that Cypriot banks continue to face what it described as “high risks” stemming from the country’s position as an international financial centre.

“This constrains our ratings on banks domiciled in Cyprus,” the agency said, adding that as a small and open economy Cyprus remains vulnerable to external shocks.

S&P also believes that the country’s economic performance is more cyclical than that of similarly sized economies.

In addition, it warned that existing inherent cross-border risks related to anti-money laundering and counter-terrorism financing arising from Cyprus’ role as an international financial centre remain a concern for banks.

These risks, according to the agency, could affect banks through higher compliance costs, potential fines and challenges in maintaining correspondent banking relationships.