BANKS in Cyprus have not been categorising loans as non-performing providing they were fully covered by collateral even though the loans had not been serviced for three months.
This conflicts with the International Monetary Fund (IMF) definition of nonperforming loans (NPLs) and results from a Directive issued by the Central Bank in December 2008, which states on page 6 that “Funded credit facilities and credit substitutes extended to customers, which are fully secured, should not be classified as non-performing”.
The Central Bank has reanalysed all bank and Coop loans to bring them into line with the IMF definition and the confidential data from this analysis was reported by StockWatch earlier today.
Using the IMF definition, NPLs at the end of September amounted to €23 billion; equivalent to 27% of the credit portfolios of banks and Coops (with the exception of the Limassol Savings Cooperative). These amounted to €19.5 billion or 26.5% of bank loans and €3.4 billion or 32.3% of Coop loans.
The Central Bank data also reveals a significant increase in NPLs as a result of the economic downturn. By the end of June, they had reached €20.7 billion and increased by a further €2.2 billion in just 3 months.
According to StockWatch, the Central Bank will soon issue a new directive to the banks and coops on the recognition of NPLs to bring them into line with the IMF definition.