In order to encourage the restructuring of non-performing debt and to reduce the risk of other loans falling into non-performing status, the Central Bank of Cyprus (CBC) has set targets for four key performance indicators. It now requires banks under its supervision to submit quarterly returns for all four measures showing actual performance at the end of the preceding quarter and targets for the two following quarter-ends. The four key performance indicators are:
- Proposed sustainable solutions as a percentage of the loans presenting arrears over 90 days. This indicator is not cumulative and is calculated at the end of the preceding quarter and for each of the next two quarters.
- Concluded sustainable solutions as a percentage of the loans presenting arrears over 90 days, calculated on a non-cumulative basis as at the same dates.
- Loans that have been restructured and present arrears of less than eight days as a percentage of the total loans which have been restructured, calculated on a cumulative basis for all loans restructured from January 1 2014 up to the beginning of the quarter for which the report is compiled.
- Loans that presented arrears over 30 days and up to 90 days at the beginning of the quarter but which by the end of the quarter did not present any arrears (due to restructuring or other measures taken by the bank), as a percentage of the loans that presented arrears over 30 days and up to 90 days at the beginning of the quarter. This indicator is intended to exert pressure on the banks to act proactively on loans before they become non-performing. A non-performing loan that is restructured remains classified as non-performing for at least 12 months, even if the new repayment programme is fully adhered to and there are no arrears.
Banks must submit the figures for their loan portfolio as a whole; and for specified sub-portfolios, including residential mortgage loans to households, other loans to households, loans to non-financial corporations with total balances of up to €1 million ($1.1 million), and loans to non-financial corporations with total balances in excess of €1 million. They are required to provide detailed explanations if they fail to achieve any of the targets and inform the CBC of the corrective measures they will be taking. The CBC may impose an upward revision of a bank's targets if it considers that they are unduly low.
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