Loan restructuring jumps 400 per cent in H1

Loan restructuring jumped 400 per cent year-on-year in the first half of 2021, after the expiration of an installment moratorium due to Covid, Central Bank Governor Constantinos Herodotou said on Monday.

Herodotou told the House finance committee that in the first half of 2020, loan restructuring reached €270m compared with €1.4bn in the same period this year, after the end of an installment suspension passed by parliament to mitigate the fallout from the coronavirus pandemic.

“It is an important success beyond the moratorium that so many loans were prevented from turning into non performing and many businesses and households managed to keep their loans as performing,” he said, adding that the restructuring did not only concern loans included in the suspension.

Herodotou said the NPL rate has dropped to 17.4 per cent in 2021, from 27.9 per cent at the end of 2019.

Cyprus, however, was still pressed to further reduce bad debts in the banking system as the average NPL rate in the Eurozone was around 2 per cent.

The governor said not all banks have shown progress in cutting their NPLs, saying that was mainly limited to one bank.

Around €16.3bn in NPLs have been sold to credit acquiring companies but despite being off the banks’ balance sheets they were still in the economy.

It did take pressure off the banks however, and afforded borrowers more time to find solutions.

Of the rising inflation, Herodotou quoted the European Central Bank, which said it was expected to peak in 2022. The upward course was not because of an increase in demand, but the supply side bottlenecks.

“If we raise interest rates because of low supply at the time when factories are boosting production, we will hit households and businesses with further (price) increases,” he said.