Reduction of non-performing loans in the Cyprus banking sector

The Central Bank of Cyprus (CBC) has recently published its latest analysis of data on non-performing loans in the Cyprus banking sector, covering the period to 31 December 2017, showing aggregate non-performing facilities (NPFs) and related indicators for the domestic operations of credit institutions operating in Cyprus. Overseas operations are excluded.

In December 2017, NPFs fell from €21,140 million to €20,572 million (a reduction of 2.7%), against a backdrop of a similar proportionate reduction in total facilities over the same period, from €48,334 million to €47,081 million. As a result, the percentage of facilities classified as non-performing at the end of December was unchanged compared with November, at 43.7%. Total impairment provisions made against non-performing debt fell to €9,637 million at the end of December, compared with €9,948 million a month earlier, resulting in the percentage of non-performing debt covered by provisions falling to 46.8% at 31 December 2017, compared with 47.1% at the end of the preceding month.

Analysing the figures at 31 December 2017 by sector, two sectors, namely non-financial corporations and households, account for the lion’s share of non-performing debt. Non-performing debts owed by non-financial corporations amounted to €9,145 million, representing 50.2% 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 55.3% of advances to SMEs being classified as non-performing. In the household sector, which accounted for 43.2% of total advances, 53.9% of debt was classified as non-performing.

In the three years since the end of 2014, banks have succeeded in reducing aggregate non-performing debt by almost a quarter, from €27,328 million to €20,572 million. Total facilities fell from €57,224 million to €47,081 million in the same period, which meant that 43.7% of total facilities were classified as underperforming at the end of the period, compared with 47.8% at the beginning. In addition, there has been a marked improvement in coverage by impairment provisions, with 46.8% of non-performing debt covered by provisions at 31 December 2017, compared with only 32.8% three years earlier.

The CBC continues to encourage credit institutions to make intensive efforts to restructure NPFs in cases where viable settlements are possible and the figures show gradual but sustained progress in reducing NPFs, achieved by 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. As the CBC has previously pointed out, there are limits to how fast property disposals can be achieved without adversely affecting the property market.

For further information on this matter please contact Dimitris Papoutsis or your usual contact at Elias Neocleous & Co LLC.