New data released by the Central Bank of Cyprus (CBK) shows that non-performing loans (NPLs) in the island nation fell by 6.2 in December 2024, down from 6.5% at the end of September.
Total illiquid assets decreased to €1,541 million from €1,598 million in September 2024, while total loans increased to €24,734 million from €24,413 million.
The MEX coverage ratio increased to 58.3% or €898m at end-December 2024 from 55.7% or €890m at end-September 2024.
Total restructured loans at the end of November amounted to € 1.38 billion, of which € 685 million are still included in non-performing loans. Household loans in arrears decreased to € 882 million (8.3% of total loans) from € 898 million in the previous month, while loans to enterprises increased to € 687 million (5.8% of total loans) from € 676 million in the previous month. Accumulated provisions for households reached 41% of total loans, while those for enterprises reached 59%.
According to the CBK, the decline in NPLs in the fourth quarter of 2007 was the result of several factors. First and foremost, it was due to loan repayments, including debt-for-asset swap mechanisms, especially for real estate. Write-offs of past due loans, their reclassification as debt instruments held for sale and the positive dynamics of restructured loans transferred to the category of serviced loans at the end of the defined observation period also played an important role.
As a reminder, problem loans are loans that are more than 90 days past due and classified as unsatisfactory, doubtful and uncollectible.
Despite the positive outlook, Cyprus remains one of the euro area leaders in terms of problem loans. In recent years, the country's financial institutions have been active in restructuring debt and selling NPLs to specialised companies, but the problem remains.
The high level of non-performing loans hampers the development of the banking system. Banks need more capital, which limits their ability to lend to firms and households. Financial stability risks remain as the Cypriot economy is highly dependent on the state of the banking sector.
To reduce the number of non-performing loans, banks have resorted to various strategies:
Debt restructuring - changing loan terms, extending repayment periods.
- Selling non-performing assets to specialised companies.
- Tightening credit policies to minimise new NPLs.
- Government support programmes for borrowers in financial difficulty.