According to new data released by the Central Bank of Cyprus (CBK) on Tuesday 15th January, the volume of non-performing bank loans (NPLs) in the island nation declined slightly.
Specifically, the figure fell by 6.5 per cent to €1.6 billion in September 2024.
In other words, compared with June, NPLs in the Cypriot banking system were €10 million lower. The decline in NPLs in the third quarter of 2024 is mainly due to (in order of importance, according to the CBK) loan repayments (including debt-for-asset [real estate] swap agreements), as well as positive movements in loans that were successfully restructured and returned to serviced loans.
In line with the European Banking Authority directive, problem loans include restructured loans that have been treated as non-performing for at least one year.
The MEX coverage ratio increased to 55.7% or €0.9 billion at the end of September 2024, compared to 55% or €0.9 billion at the end of June 2024. Total loans restructured at the end of September amounted to € 1.3 billion, of which € 700 million are still included in non-performing loans. The amount of household loans in arrears fell to € 900 million from € 916 million in the previous month, while corporate loans fell to € 658 million from € 682 million.
As a reminder, non-performing loans are loans that are more than 90 days overdue and classified as unsatisfactory, doubtful and bad.
Normally, the European Central Bank forces banks that have a lot of bad loans to hold more capital, which ends up slowing the economy as banks have less money to lend.
Indeed, non-performing loans are a persistent weakness in the Cypriot banking sector, although the situation is expected to gradually improve. Non-performing loans continue to pose a risk to the stability of the island's financial system and remain the main obstacle to the strengthening of the banking sector.