The Central Bank of Cyprus announced on Friday, January 7, that the total amount of non-performing bank loans decreased by 722 million euros (or by 14.4%) at the end of the third quarter of 2021.
The total volume of loans in Cyprus decreased from 28.388 billion euros at the end of the second quarter to 27.902 billion euros at the end of the third quarter. The difference was 486 million euros or 1.7%.
In accordance with the directive of the European Banking Authority, problem loans are non-performing loans for at least one year.
As a result of the reduction in problem loans, the ratio of non-performing loans to total loans decreased from 17.6% at the end of the second quarter to 15.4% at the end of the third quarter of 2021. The coverage ratio reached 45.7% at the end of the third quarter, compared to 46.8% at the end of the second quarter.
It is noteworthy that in the period from December 31, 2014 to September 31, 2021, the volume of non-performing loans in Cyprus decreased by a whopping 23 billion euros or 84.3%.
The Central Bank of Cyprus stated that the downward trend in problem loans in the third quarter of 2021 was associated with the sale and transfer of loan portfolios to companies buying loans that were successfully restructured, as well as during the repayment of loans, including debt exchange agreements with assets (real estate).
In addition, loan write-offs made either in the context of restructuring, often in respect of amounts for which there are doubtful reserves in bank accounts, or in respect of non-contractual or "accounting" write-offs against amounts already included, also contributed to a decrease in non-performing loans.
The total amount of restructured loans by the end of the third quarter of 2021 amounted to 3.911 billion euros, of which 2.085 billion euros were still classified as problem loans.
Of the total volume of loans, 14.626 billion euros at the end of the third quarter of 2021 were corporate loans, of which 1.762 billion euros were overdue loans.
As for loans to the population, at the end of the third quarter of 2021, their volume amounted to 11,130 billion euros, of which 2,187 billion euros related to overdue loans.
The Central Bank of Cyprus noted that when calculating problem loans, local banks used the definition used by the European Banking Authority (EBA).
The EBA provides that when a non-performing loan is restructured, it is not automatically removed from this category, but remains unattended in the category of non-performing loans for an additional period of at least 12 months, even if the borrower follows the agreed repayment schedule without delay. This means that some of the restructured loans are still considered problematic, even if the borrower complies with the new repayment schedule.
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