Debt restructurings slow down in 2022 following a record year

By Gregoris Savva

Debt restructurings in Cyprus declined to €545 million in the first half of 2022, with loan renegotiations slowing down following a record 2021 due to the Covid-19 pandemic, and as non-performing loans ratios decline to the lowest point since the 2013 financial crisis.

According to data published by the Central Bank of Cyprus, analysed by CNA, debt restructuring in the period January – June 2022 dropped by 59 per cent compared with the first half of 2021 when loan renegotiations amounted to €1.42 billion.

Last year marked a record in debt restructuring in Cyprus with Cypriot banks upping the pace following the initial crisis of the Covid-19 pandemic and especially after the ending of a payment holiday, the largest in the EU in December 2020. Restructurings throughout 2021 amounted to €2.32 billion from €0.75 in 2020 and €0.57 billion in 2019, before the Covid crisis.

Restructurings in the first half of this year remain elevated by 18.4 per cent compared with the respective period of 2020.

According to the CBC data, large corporate loans over €1 million had the biggest share of restructurings in the first half this year by far with €467 million or 85 per cent of total restructurings. Housing loans restructurings amounted to €58 million.

Debt restructuring in the first half of 2022 was also affected by non-performing loan sales concluded by Cyprus’ two largest banks. Bank of Cyprus in November 2021 sold a portfolio of NPLs with a contractual value of 0.99 billion (Helix 3), while Hellenic Bank concluded its first major NPL sale in April 2022, disposing NPLs with a contractual value of €1.32 billion.

These loans were “carved out” from the banking system to credit acquiring companies and debt servicing companies with banks der-risking their balance sheets and consequently reducing the pressure on their capital.

Based on the latest data published by the CBC, the ratio of NPLs to total loans in the Cyprus banking system in the end of March 2022 stood at 11.4 per cent (as defined by the EBA directive) with total NPLs amounting to €2.92 billion.

However, in its financial stability report for 2021, the CBC warned although no particular increase in NPLs was recorded due to the Covid pandemic, the new geopolitical crisis due to the war in Ukraine “brings the risk of NPL increase back to the fore.”