Cyprus: Reducing banks’ non-performing debt

Author: | Published: 11 Dec 2018
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On September 14, the Central Bank of Cyprus (CBC) published its latest analysis of data on non-performing loans in the Cyprus banking sector. The analysis covered the period to May 31 2018, and showed aggregate non-performing facilities and related indicators for the domestic operations of credit institutions operating in Cyprus.

During May 2018, non-performing facilities increased by €14 million ($16.2 million) to €19.9 billion, against a backdrop of a growth of €262 million in total facilities over the same period to €46.6 billion. 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. The percentage of non-performing debt covered by impairment provisions improved marginally to 48.6% at the end of May, compared with 48.5% a month earlier.

Since the end of 2014, banks have succeeded in reducing aggregate non-performing debt by more than a quarter, from €27.3 billion to €19.9 billion, resulting in the percentage of debt classified as underperforming improving from 47.8% to 42.7% over the same period. In addition, there has been a marked improvement in coverage by impairment provisions, with 48.6% of non-performing debt covered by provisions at May 31 2018, compared with only 32.8% at the end of 2014.

At first sight, it is disappointing that non-performing facilities have increased in absolute terms for the first time for several years. However, 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.

Legislative amendments were 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. The government and the CBC will no doubt be hoping that those changes will quickly have a positive impact and that the earlier pattern of a steady reduction in non-performing debt will soon be restored.

Neocleous
Elias Neocleous