Substantial reduction of non-performing loans in the Cyprus banking sector

On 11 January 2019 the Central Bank of Cyprus (CBC) published on its website its latest monthly analysis of data on non-performing loans in the Cyprus banking sector, covering the period ended 30 September 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 September 2018, non-performing facilities fell by more than one-third, from €16,595 million to €11,021 million, against a backdrop of a 16 per cent reduction in total facilities over the same period, from €41,048 million to €34,652 million. The percentage of facilities classified as non-performing fell from 40.4 percent at the end of August to 31.8 percent at the end of September. Total impairment provisions held against non-performing debt fell to €5,715 million at the end of September, compared with €7,952 million a month earlier, resulting in the percentage of non-performing debt covered by provisions at the end of September improving to 51.9 percent, compared with 47.9 percent at the end of the preceding month.

Two sectors, namely non-financial corporations and households, account for the lion’s share of non-performing debt at 30 September 2018. Non-performing debts owed by non-financial corporations amounted to €5,350 million, representing 36.2 percent 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 41.3 percent of advances to SMEs being classified as non-performing. In the household sector, which accounted for 40.4 percent of total advances, 38.0 percent of debt was classified as non-performing.

The largest factor in the significant improvement in the figures over the month of September 2018 is the transfer of the impaired loan portfolio of the former Co-operative Bank to the Cyprus Asset Management Company, known by the acronym KEDIPES, which is tasked with achieving viable restructuring in cooperation with borrowers and, where this is not feasible, to dispose of assets at to maximum values. In addition to this one-off boost, the CBC reports that the figures have benefited from the sale of loans, the reclassification of loans as debt instruments held for sale, the successful completion of the probation period of restructured loans and their reclassification as performing, write-offs, repayments and settlement of debt through swaps with immovable property that is expected to be sold with the aim of faster cash collection.

Since the end of 2014, banks have succeeded in reducing aggregate non-performing debt by almost 60 percent, from €27,328 million to €11,021 million. Total facilities fell from €57,224 million to €34,652 million in the same period, and 31.8 percent of total facilities were classified as underperforming at the end of the period, compared with 47.8 percent at the beginning, a reduction of more than one-third. In addition, there has been a marked improvement in coverage by impairment provisions, with more than one-half of non-performing debt covered by provisions at 30 September 2018, compared with less than one-third at the end of 2014.