Cyprus sees further reduction in non-performing loans in September 2023

Cyprus’ banking system witnessed a further decline in non-performing loans (NPLs) at the end of September 2023, dropping to €2.02 billion from €2.08 billion in August, reflecting an ongoing trend of improvement, according to a report released this week by the Central Bank of Cyprus (CBC).

Moreover, when compared to the previous quarter ending in June, non-performing loans decreased by €95 million.

According to the CBC report, total lending decreased to €24.36 billion, following a steady quarterly decline.

In addition, non-performing loans amounted to €2.01 billion, reducing the NPL ratio to 8.3 per cent, down from 8.7 per cent in June 2023.

The coverage ratio of NPLs with impairment provisions remained relatively stable at 50.3 per cent by the end of September 2023, compared to 50.4 per cent, a total of €1.1 billion, in June 2023.

Elsewhere, a substantial reduction of €80 million was observed in loans that faced delays exceeding 90 days, which amounted to €1.58 billion in September, down from €1.66 billion in August, accounting for 6.5 per cent of total loans.

The Central Bank of Cyprus attributed the sustained downward trajectory of NPLs in the third quarter of 2023 primarily to loan write-offs conducted within restructuring frameworks, encompassing both unconventional or “accounting” write-offs against already included provisions, along with loan repayments, including debt swap agreements involving real estate assets.

What is more, the decline has also been attributed to successfully restructured loans reintegrated into the performing loan category after the monitoring or surveillance period.

Furthermore, restructured loans held by licensed credit institutions until the end of September 2023 amounted to €1.86 billion, down from €1.92 billion in the previous month, representing 7.7 per cent of total loans.

Meanwhile, restructured loans that are still classified as non-performing decreased to €916 million in September, down from €950 million in the previous quarter.

Household NPLs in September fell to €1.12 billion compared to €1.18 billion in August, representing 10.6 per cent of total household loans.

It should be noted that the total provisions against household NPLs stood at 36.8 per cent.

Corporate NPLs, meanwhile, remained stable at €0.86 billion, maintaining a consistent 7.2 per cent of total corporate loans. Total provisions against corporate NPLs amounted to 66.4 per cent.

In terms of the European Union as a whole, according to the ECB’s quarterly statistics released in October of this year, the aggregate non-performing loans ratio (excluding cash balances) remained stable at 2.26 per cent at the end of the second quarter of 2023, compared with 2.24 per cent in the previous quarter.

Additionally, the ECB noted at the time that the share of loans showing a significant increase in credit risk (stage 2 loans) decreased slightly to 9.19 per cent, down from 9.31 per cent in the previous quarter).