Reduction of non-performing loans in the Cyprus banking sector

The Central Bank of Cyprus (CBC) has released its latest analysis of data on non-performing loans in the Cyprus banking sector, covering the period to 31 August 2017, showing aggregate non-performing facilities (NPFs) and related indicators for the domestic operations of credit institutions operating in Cyprus. During the month of August non-performing facilities fell by €497 million, a reduction of 2.2%, to €21,865 million, against a backdrop of a smaller (1.1%) reduction in total facilities, from €49,460 million to €48,897 million, over the same period. As a result, the percentage of facilities classified as non-performing fell to 44.7% at the end of August 2017. Total impairment provisions made against non-performing debt were €10,032 million at 31 August 2017, accounting for 45.9% of non-performing debt.

Since the end of 2014 banks have succeeded in reducing aggregate non-performing debt by 20%, from €27,328 million to €21,865 million. Total facilities fell from €57,224 million to €48,897 million in the same period, which meant that 44.7% of total facilities were classified as underperforming at the end of the period, compared with 47.8% at the beginning. While the improvement in the quality of debt appears to be marginal, the improvement in coverage by impairment provisions is more marked, with 45.9% of non-performing debt covered by provisions at 31 March 2017, compared with only 32.8% at the beginning of the period.

Two sectors, namely non-financial corporations and households, continue to account for the lion’s share of non-performing debt. Non-performing debts owed by non-financial corporations amounted to €9,927 million, representing 52.1% of total advances to the sector. Within the sector, small and medium-sized enterprises (SMEs) showed an even higher proportion of non-performing debt, with 57.5% of advances to SMEs being classified as non-performing. In the household sector, which accounted for 42.6% of total advances, 54.9% of debt was classified as non-performing.

The CBC attributes the reduction in NPFs to increased repayments, restructurings successfully completed and reclassified as performing facilities, write-offs and settlement of debt through swaps with immovable property intended to be sold with the aim of faster cash collection.

Recognising the effect that wholesale foreclosure and forced sale of assets pledged as security may have on the property market, the CBC continues to encourage credit institutions to make intensive efforts to restructure NPFs in cases where viable settlements are possible.