Despite the government's efforts, the quantity of non-performing loans in the real estate sector in Cyprus remains one of the highest in the European Union.
According to data released by the European Banking Authority (EBA) on Thursday, April 2, banks of Greece and Cyprus hold the leading positions among the EU member states in terms of the number of problem loans.
Thus, in the fourth quarter of 2020, the NPL ratio in the construction sector in Cyprus was 59.5%, which was the highest in Europe. Greece is on the second line as they had 48.9%.
The average for the euro area was 10.6%.
In addition, Cyprus is in the first place in the European Union in terms of the number of problem loans in the real estate sector.
Their share turned out to be a record high - 43.9% in the fourth quarter of 2020.
As for the total share of non-performing loans in the banking system of Cyprus, it was 11.5% and this is the second worst indicator among the EU member states, after Greece (25.5%).
As you may know problem loans include loans overdue for more than 90 days and classified as unsatisfactory, doubtful and hopeless. Usually, the European Central Bank forces banks that have a lot of problem loans to hold more capital, which ultimately slows down the economy, since banks have less funds to issue new loans.
Non-performing loans are a persistent weakness in the Cyprus banking sector, although the state of affairs is predicted to gradually improve. Red loans continue to pose a risk to the stability of the island's financial system and remain the main obstacle to strengthening the banking sector.