Cyprus's banking sector demonstrated a historic result: for the first time since 2014, the level of non-performing loans (NPLs) fell below the European Union average. According to Central Bank of Cyprus, by the end of December 2025 the share of problematic loans stood at 1,6%, whereas the EU average in September 2025 was 1,8%. This is an important signal for the country's economy, since only a few years ago Cyprus was considered one of the EU leaders in the share of troubled debt after the financial crisis.
Decline in banking sector indicators
If loans are calculated excluding credits and advances issued to credit institutions, the share of problematic loans in the banking system decreased to 3,2% by the end of December 2025. For comparison, at the end of September 2025 this indicator stood at 4,5%.
According to the methodology of the European Banking Authority, which is applied in the pan-European risk assessment system, the overall level of non-performing loans decreased from 2,3% in September to 1,6% in December 2025. In absolute figures, the volume of problematic loans in December amounted to 834 million euros with a total loan volume of 52 billion euros. In September 2025, problematic debt reached 1,173 billion euros with a loan portfolio of 50 billion euros. Thus, over three months the volume of NPLs decreased by more than 300 million euros.
Who accounts for the non-performing debt
Of the 834 million euros of non-performing loans, 487 million euros are attributed to households, 317 million euros to non-financial companies, of which 288 million euros represent obligations of small and medium-sized businesses. This shows that the main burden of problematic loans still lies with private individuals as well as small and medium-sized enterprises.
Experts note that the improvement in indicators is linked both to active debt restructuring and to stricter bank lending policies in recent years. The sale of problematic portfolios to specialized management companies also played a significant role.
Restructuring and bank reserves
By the end of December 2025, the total volume of restructured loans reached 0,8 billion euros. Of these, 0,3 billion euros are still classified as problematic. This means that some borrowers continue to experience financial difficulties despite revised payment terms. The coverage ratio of problematic loans by reserves decreased to 62,3% compared to 68,5% in September 2025. The decrease is explained by the reduction in the overall volume of NPLs and the improvement in the quality of the loan portfolio.
What this means for the Cyprus economy
The reduction of the share of non-performing loans below the EU average for the first time since the harmonization of the NPL definition in 2014 strengthens investor confidence in Cyprus’s banking system. It also creates a more stable foundation for lending to businesses and the population in 2026.
Financial analysts believe that with continued stable economic growth and moderate inflation, banks will be able to further reduce the level of problematic debt. At the same time, risks remain related to the high debt burden of households and the influence of the international economic situation.
Nevertheless, current data confirm that Cyprus’s banking sector is gradually reaching the pan-European level of stability and demonstrating a sustainable recovery after the crisis years.