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13 June, 2024
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Cyprus non-performing loans drop to lowest level in years

From €28B to €1.9B: The dramatic decline of Cyprus' NPLs

Panayiotis Rougalas

Panayiotis Rougalas

Total non-performing loans (NPLs) to banks have dropped below €2 billion, specifically to €1.9 billion. At the end of 2017, NPLs amounted to an astounding €20.5 billion, and at their peak in 2014-2015, they had reached nearly €28 billion. Since 2018, a "break" in partnerships and substantial sales of problematic loans from Cypriot banks to foreign investment funds have led to significant reductions in NPLs. The first major reduction occurred in 2018 with the sale of the cooperative and the historic sale of a large NPL package worth €2.8 billion by the Bank of Cyprus to Apollo. Consequently, the €20.5 billion NPLs were reduced to €10.2 billion by the end of 2018, followed by further decreases to €8.9 billion in 2019, €5.1 billion in 2020, €2.9 billion in 2021, €2.3 billion in 2022, and €1.89 billion in 2023.

The sale and write-off of loans over the years have come at a cost, leading to a booming secondary market for problematic loans. The investment funds that purchased these loans established credit buyback companies in Cyprus, which now handle nearly all the problematic loans. Private debt remains a significant concern for institutions, Europeans, and rating agencies. Despite the downward trend, private debt in Cyprus remains high compared to other euro area countries, partly due to the inclusion of debt owned by credit buyback companies and special purpose entities. According to the latest data, domestic non-financial private sector debt has significantly decreased from 352% of GDP at its peak in the first quarter of 2015 to 210% in the second quarter of 2023, mainly due to nominal GDP growth and loan write-offs. Excluding the aforementioned entities, private debt falls to 157% of GDP.

The new Financial Commissioner, Valentina Georgiadou, is looking to change several long-standing issues. Between 2015 and 2023, only 65.5% of binding decisions were accepted by consumers and just 25% by financial companies. Acceptance rates were particularly low among banks (24%), credit repurchase companies (14%), CIFS (28%), and insurance companies (21%). The effort to reduce NPLs must be comprehensive, recognising the problem's gravity. The economy is burdened by billions in NPLs that need to be addressed, ideally returning these loans to the banks. Historically, 64% of mediations resulted in viable restructurings and 8% in amicable settlements. These rates need improvement, and the new responsibilities of the Financial Commissioner should be supported for the economy's benefit.

[This article was translated from its Greek original]

Cyprus  |  banks  |  loans  |  economy

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