Cypriot households and non-financial corporations continued to be highly indebted, collectively owing some 358 per cent of the island’s gross domestic product in September 2015, a Central Bank of Cyprus (CBC) report said, though there were signs of stabilisation.
According to the CBC’s Household and Non-Financial Indebtedness Report that was published on Wednesday, total debt reached 358 per cent of GDP – around €17bln – at the end of September 2015.
“Nevertheless, household and NFC debt ratios remained fairly stable, falling slightly to 127.7 per cent and 230.4 per cent of GDP respectively at the end of September 2015 compared to the previous year,” the report said.
The CBC said bank credit to the domestic private sector fell to 249.9 per cent of GDP at end of September 2015 compared with 258.7 per cent the previous year.
However, the debt‐servicing capacity of households and NFCs continued to be weak, as reflected in the high aggregate debt service ratio and high non‐performing bank loan ratios, especially in the case of loans to the broader real estate sector to which banks are highly exposed.
Households’ net worth fell to 107.9 per cent of GDP in Q3 2015 while the net financial liabilities of NFCs remained high at 227.4 per cent of GDP at end of September 2015, continuing their increase from last year’s level.
Property prices continued their downward trend, though the pace slowed down “indicating that prices may be bottoming out” the CBC said.
GDP in Cyprus is expected to rise by 2 per cent in 2016, financed to a large extent by banks. “This shows that Cyprus is on a path of recovery following three years of recession.”
And, Cyprus banks were making headway in restructuring their NPL portfolios — roughly half of the loans or around €27bln.
The banks were aided by recent improvements in the legal tools governing foreclosures, complemented by a revised personal and corporate insolvency regime facilitating debt restructuring.
“NPLs reached their peak in February 2015 in absolute terms and have been decreasing ever since, which should help release financial resources in the banking system for the financing of real economic activity.”