Reduction of non-performing loans in the Cyprus banking sector

On 9 August the Central Bank of Cyprus (CBC) published its latest analysis of data on non-performing loans in the Cyprus banking sector, covering the period to 30 April 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 April 2018, aggregate non-performing facilities remained almost static, falling by €2 million from €19,918 million to €19,916 million, against a backdrop of a 0.1% increase in total facilities over the same period, from €46,332 million to €46,386 million. As a result, the percentage of facilities classified as non-performing improved from 43.0% at the end of March 2018 to 42.9% at the end of April. Total impairment provisions made against non-performing debt fell to €9,661 million at the end of April, compared with €9,675 million a month earlier, resulting in the percentage of non-performing debt covered by provisions falling to 48.5% at the end of April, compared with 48.6% at the end of the preceding month.


Analysing the figures at 30 April 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 €8,831 million, representing 48.9% of total advances to the sector, up from 48.4% a month earlier. Within the sector, small and medium-sized enterprises (SMEs) showed an even higher proportion of non-performing debt, with 54.2% of advances to SMEs being classified as non-performing, up from 53.6% at the end of March. In the household sector, which accounted for 43.3% of total advances, 53.6% of debt was classified as non-performing, the same percentage as at the end of March.


Since the end of 2014, banks have succeeded in reducing aggregate non-performing debt by more than a quarter, from €27,328 million to €19,916 million. Total facilities fell from €57,224 million to €46,386 million in the same period, which meant that 42.90% 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 48.5% of non-performing debt covered by provisions at 30 April 2018, compared with only 32.8% at the beginning of the period.


The apparent stalling of progress in April shows the difficulty of dealing with the issue, but 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.