ATHENS, Greece (AP) — International agency Moody’s has raised Cyprus’ credit rating by one notch to Ba2 because of the ongoing recovery of the island-nation’s banking sector and its strong economic growth and fiscal surplus.

The upgrade puts Cyprus just two notches below investment grade.

Moody’s said in a statement Friday the take-over of the troubled, state-owned Cooperative Bank by Cyprus-based Hellenic Bank has bolstered the banking system’s recovery.

It also said that strong economic growth and a large fiscal surplus is helping the country cope with its large debt load that will peak this year at 107 percent of gross domestic product, but will begin falling in 2019.

The agency warned that Cyprus’ banking sector still faces challenges since over half of loans to Cypriot households are non performing.