Reduction of non-performing loans in the Cyprus banking sector

On 14 September 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 31 May 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 May 2018, non-performing facilities increased by €14 million, from €19,916 million to €19,930 million, against a backdrop of an increase in total facilities over the same period, from €46,386 million to €46,648 million. The percentage of facilities classified as non-performing improved marginally, from 42.9% at the end of April 2018 to 42.7% at the end of May. Total impairment provisions made against non-performing debt increased to €9,697 million at the end of May, compared with €9,661 million a month earlier, resulting in the percentage of non-performing debt covered by provisions at the end of April increasing marginally to 48.6%, compared with 48.5% at the end of the preceding month.

Since the end of 2014, banks have succeeded in reducing aggregate non-performing debt by more than a quarter, from €27,328 million to €19,930 million. Total facilities fell from €57,224 million to €46,648 million in the same period, which meant that 42.7% 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 48.5% of non-performing debt covered by provisions at 31 May 2018, compared with only 32.8% at the beginning of the period.

While the fact that non-performing facilities have shown an increase in absolute terms for the first time for several years is disappointing, the movements are small, and the percentages of non-performing debt to overall debt, and of non-performing debt covered by provisions, both show an improved position compared to the previous month-end, indicating that progress is continuing to be made in improving debt quality.

Nevertheless, the government and the CBC will no doubt be hoping that the legislative amendments enacted in early July 2018 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, will quickly have a positive impact and that the earlier pattern of a steady reduction in non-performing debt will soon be restored.