Cypriots have become less likely to use loan restructurings

The total volume of loan restructurings in Cyprus in 2024 has decreased significantly.

The main reason for this is the continuous decline in interest rates on loans due to the European Central Bank's cut in key interest rates.

This is according to a report published recently by the Central Bank of Cyprus. According to the island nation's main financial institution, loan restructurings in Cyprus from January to December 2024 fell by 30.6 per cent to €2,464.4 million from €3,552.8 million in 2023.

Interestingly, the vast majority of restructurings were to households. However, their total volume will decrease to €529.6 million from €826.5 million in 2023. In turn, the total volume of business loan restructurings fell by 29% to €1,934.8m from €2,726.3m in 2023.

There is no denying that the right restructuring decisions enable both businesses and households to meet their obligations. Thanks to this, banks' balance sheets are not burdened by new defaults, the smooth operation of businesses continues, the number of bankruptcies is reduced and, as a result, it contributes to the orderly functioning of the economy, - said the Central Bank of Cyprus.

Recall 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 it. It is impossible to transfer it 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

1. Reduce the interest rate - each month the debtor will spend less on servicing the loan;
2. Stretching" the term of the loan - the term is increased, but the amount of monthly payments on the loan is reduced;
3. Give the borrower a credit holiday - for some time it is possible to pay only the interest on the loan;
4. You can pay only the interest on the loan;
5. Write off the accrued interest.

It is important to note that the terms of the loan are not fundamentally better - for the debtor it is just an opportunity to "take 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.