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Cypriot construction sector NPLs highest in Europe

By Stelios Orphanides

Almost a decade after the 2008 real estate bubble bust, Cyprus’s ratio of non-performing loans in the real estate and construction sector remain among the highest in the European Union (EU) and European Economic Area (EEA), the European Banking Authority said.

The non-performing loans ratio of construction companies was 75 per cent in March down from 76 per cent in December which was in both cases the highest in Europe, the EBA said in its quarterly Risk Dashboard report on its website. That of the real estate sector stood at 39 per cent at the end of March, the third highest, down from 43 per cent in December.

The construction and real estate sector in Cyprus, both benefiting from the government’s scheme which allows investors, also in real estate, to obtain a Cypriot passport or a permanent residence permit depending on the size of their investment, saw the size of their respective non-performing loans fall at the end of March to €3.2bn from €3.4bn a quarter before and to €1.4bn from €1.6bn respectively, according to EBA.

The Cypriot government is also supporting both demand and supply in the real estate and construction sector via tax cuts and town planning relaxations. Debt-to-asset swaps, which resulted in banks onboarding more than €2.1bn in real property since 2015, has also helped reduce loan arrears in the island’s construction and real estate sector.

Cyprus’s construction sector output rose last year 25 per cent to €752.9m compared to 2016, which is roughly one third of the all-time high of 2008. Output in the real estate sector rose 2.8 per cent to €1.6bn.

The delinquent loans ratio of the construction sector in Greece was the second highest in Europe at the end of the first quarter with 67 per cent followed by Italy’s 47 per cent and Malta’s 41 per cent, according to the EBA figures. In the real estate sector, the highest ratio was Greece’s 56 per cent followed by Bulgaria’s 40 per cent.

The average non-performing loans ratio in the construction and real estate sectors at the end of March in the EU and EEA was 20 per cent and 5.2 per cent respectively, the EBA said.

The lowest ratios in construction at the end of the first quarter were Norway’s 0.9 per cent, followed by Sweden’s 2.2 per cent and a 3.1 per cent in Denmark, EBA said. In the real estate sector, Sweden boasted a negligible 0.1 per cent, the lowest in Europe, followed by 0.7 per cent in Norway and 0.9 per cent in Denmark.

Total non-performing loans stood in March at €19.9bn or 43 per cent. They are considered a major risk for the Cypriot economy, which expanded last year 3.9 per cent and emerged in 2015 from a prolonged recession which led to a twin fiscal and banking crisis in 2013. On July 8, the parliament passed legislation amending the foreclosure and insolvency framework in an attempt to help banks improve borrower discipline and tackle strategic default.

The banking sector’s exposure to construction was 19 per cent in March, which was three times the average in Europe as well as the highest, the EBA said. Exposure to the real estate sector was 16 per cent, well below the average of 27 per cent.



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