New data released by the Central Bank of Cyprus (CBK) on Thursday 17th April showed that non-performing loans (NPLs) in the island nation rose from 6.2% at the end of December 2024 to 6.3% in January 2025, or €1.553tn.
The MEX coverage ratio rose to 58.3% or by €0.9bn at the end of January.
Total loans restructured in the first month of the new year amounted to € 1.3 bn, of which € 700 m is still included in non-performing loans.
According to the CBK, the slight increase in NPEs at the end of January 2025 is mainly due to the negative development of loans in this category and exchange rate fluctuations.
As a reminder, problem loans are those that are more than 90 days past due and classified as ineffective, doubtful or uncollectible.
Despite the moderately optimistic economic outlook, Cyprus continues to lead the euro area in the level of such loans. In recent years, Cypriot banks have made significant efforts to address this problem, restructuring debt, selling NPL portfolios to specialised companies and tightening controls on new lending. However, the level of toxic assets remains high and is putting significant pressure on the banking sector.
The large volume of non-performing loans reduces banks' liquidity and resilience, limiting their ability to finance the economy - both businesses and consumers. This in turn increases systemic risks and hampers sustainable growth.
What is being done to reduce NPLs?
- Restructuring - renegotiating loan terms, extending maturities and adjusting repayment schedules to borrowers' ability to repay.
- Selling bad assets - transferring NPLs to specialised companies that deal with their recovery.
- Tightening credit standards - introducing stricter criteria for new lending.
- Government support - implementing support programmes for debtors in financial difficulty.
Thus, while progress is being made in clearing NPLs from banks' balance sheets, the problem remains acute. Success in this direction is crucial not only for the banking sector but also for the whole Cypriot economy, which is closely linked to the financial system.