Non-Performing Loans drop by €105 million, marking 4.6 per cent decline

The Central Bank of Cyprus (CBC) this week released an updated report indicating a significant reduction in non-performing loans (NPLs) by €105 million, a drop of 4.6 per cent of the total outstanding amount.

The figures, as of the end of March 2023, reflect a decrease to €2.2 billion, compared to the end of December 2022.

According to the Central Bank’s report, total loans increased from €24.36 billion in December 2022 to €24.43 billion by March 2023, reflecting a modest growth of €71 million, a rise of 0.3 per cent.

Additionally, the coverage ratio for NPLs improved to 48.8 per cent by the end of March 2023, compared to 47.5 per cent at the end of December 2022.

The report highlighted the fact that during the period from December 31, 2017, to March 31, 2023, there was a significant decline of €18.4 billion, a share of 89.3 per cent, in NPLs held by Cypriot banks.

This decrease was mainly attributed to the sale of loans to credit acquisition companies.

The continued downward trend in NPLs during the first quarter of 2023 can be attributed, according to the Central Bank, to various factors, notably debt repayments, including debt-to-asset swaps, write-offs of loans, which typically involve amounts already provisioned for in banks’ accounts, and the successful restructuring and reclassification of loans as performing assets after the monitoring period.

Furthermore, loans with delays exceeding 90 days amounted to €1.73 billion, 7.1 per cent of total loans, compared to €1.82 billion, a share of 7.5 per cent, at the end of 2022.

The report also revealed that restructured loans by the end of March 2023 amounted to €2.43 billion, down from €2.73 billion in December 2022, of which €991 million continue to be classified as non-performing.

Household NPLs stood at €1.23 billion, accounting for 11.7 per cent of total loans, with the total provisions reaching 36.6 per cent. Household loans totalled €10.6 billion.

Moreover, NPLs held by companies reached €923 million in March 2023, representing 7.6 per cent of total loans, with total provisions at 63.5 per cent. Corporate loans amounted to €12.07 billion by the end of March 2023.

According to the Central Bank, credit institutions are obligated to adhere to the definition adopted by the European Banking Authority for the identification of NPLs.

Under this definition, when a loan is restructured, it does not automatically transfer to the performing loans category but remains under monitoring as an NPL for an additional period of at least 12 months, even if the borrower adheres to the new repayment plan without delays.

Consequently, a portion of restructured loans is still classified as non-performing, according to this definition.

The decline in non-performing loans indicates positive progress in the country’s financial sector, bringing potential economic benefits and improved stability for both lenders and borrowers.