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Private sector debt drops to 354% of GDP in March, CBC says

The Central Bank of Cyprus said that the private sector’s financial position improved in March even as it remains overindebted following a minor drop in private debt.

The household and non-financial corporation debt fell in March to over 354 per cent of economic output from almost 358 per cent in December, the central bank said on Friday.

“Household debt and non-financial corporation debt indicators gradually fell at the end of March to 127 per cent and 227 per cent of gross domestic product, respectively, compared to the respective period of 2015,” it added. Bank facilities to the domestic private non-financial sector dropped to 243 per cent in March 2016 from 252 per cent at the end of the first quarter of 2015.

In addition, the net value of household financial assets rose to 122 per cent of GDP in the first quarter of the year from 116 per cent the quarter before, the bank supervisor said. The net financial liabilities of non-financial corporations dropped in March to 222 per cent of the economy from 226 per cent in December.

The central bank said that while property prices continued to drop, the rate has slowed down reflecting price stabilisation at their lowest point. “There are signs of domestic demand and external demand supported by the decrease in interest rates,” it said.

The central bank said that it expects the economy to grow 2.7 per cent this year and maintained its latest forecast unchanged which is slightly more pessimistic compared to that of the finance ministry. It added that the high rate of non-performing loans which make up roughly half of the banking system’s portfolio are “the key challenge for banks,” which made “considerable progress” in managing their bad loans.

The modernisation of the foreclosure and insolvency law combined with the return to growth is further supporting efforts to restructure non-performing loans, which peaked in February, the central bank continued, adding that this “should help release financial resources in the banking system for the financing of real economic activity”.

In the past year, “strong policy action was taken and the economic adjustment programme was followed through, which was important in mitigating the impact of the high level of indebtedness and the vulnerabilities being faced by the financial sector,” the bank supervisor said.

The central bank added that it expects that the draft legislation on the securitisation of loans will be submitted to the parliament “later this year”.



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