At the beginning of 2024, the overall trend of loan restructuring in Cyprus has accelerated significantly.
The main reason for this is the continuous increase in interest rates on loans, due to the increase in key interest rates by the European Central Bank.
This is according to a report published by the Central Bank of Cyprus. According to the island state's main financial institution, the volume of loan restructurings in Cyprus from January to May 2024 exceeded €2 billion.
Interestingly, the vast majority of restructurings shook households, whose total volume rose to 232.2 million euros from 172.2 million euros in the corresponding period of 2023 and 107 million euros in 2019. Meanwhile, the total volume of business loan restructurings fell to €731.1m, from €951.7m in 2023 and €319.2m in 2019.
There is no denying that the right restructuring decisions allow both businesses and households to meet their obligations. Thanks to this, banks' balance sheets are not burdened with new defaults, businesses continue to operate smoothly, bankruptcies are reduced and, as a result, it contributes to the orderly functioning of the economy," Irodotu said.
It should be recalled that restructuring is a change in the terms of an existing loan.
The loan agreement remains in force and all issues are resolved in the organisation that issued the loan. It is not possible to go to another bank. The aim of this programme is to improve the financial situation of the borrower who has had difficulties in repaying the debt.
Restructuring is carried out according to one of the following options:
- Reduce the interest rate - each month the debtor will spend less on servicing the loan;
- "Stretching" the term of the loan - the term is extended, but the amount of monthly payments on the loan is reduced;
- Give the borrower a credit holiday - for some time it is possible to pay only the interest on the loan;
- You can pay only the interest on the loan;
- Write off the accrued interest.
It is important: the terms of the loan are not fundamentally better - for the debtor it is only an opportunity to "get a break", to avoid a difficult situation, not to spoil relations with the creditor. Banks agree to restructuring in order to avoid being saddled with bad debts and to get their money without having to go to court and seize property.