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 March 2018, showing aggregate non-performing facilities (NPFs) and related indicators for the domestic operations of credit institutions operating in Cyprus. Overseas operations are excluded.

During the month of March 2018, non-performing facilities fell by almost ten percent, from €21,992 million to €19,918 million, against a backdrop of a five percent reduction in total facilities over the same period, from €48,512 million to €46,332 million. As a result, the percentage of facilities classified as non-performing fell from 45.3% at the end of February 2018 to 43.0% at the end of March. Total impairment provisions made against non-performing debt fell to €9,675 million at the end of March, compared with €11,842 million a month earlier, resulting in the percentage of non-performing debt covered by provisions falling to 48.6% at the end of March, compared with 53.9% at the end of the preceding month.

Analysing the figures at 31 March 2018 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 €8,653 million, representing 48.4% 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 53.9% of advances to SMEs being classified as non-performing. In the household sector, which accounted for 43.4% of total advances, 53.6% of debt was classified as non-performing.

Since the end of 2014, banks have succeeded in reducing aggregate non-performing debt by more than a quarter, from €27,328 million to €19,918 million. Total facilities fell from €57,224 million to €46,332 million in the same period, which meant that 43.0% 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 48.6% of non-performing debt covered by provisions at 31 March 2018, compared with only 32.8% at the beginning of the period.

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.

Legislative amendments enacted in early July 2018, including the introduction of a legal framework for securitisation of debts, are expected to facilitate and speed up the process of reducing non-performing debt, by making it easier for financial institutions to dispose of loans, expediting foreclosure proceedings and increasing the scope of debt relief schemes.

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