NON-PERFORMING loans (NPLs) in the Cyprus banking system stood at €27.3 billion in September 2015 accounting for 47.8 per cent of total loans according to the latest figures from the Central Bank of Cyprus.
In December 2014 non-performing loans accounted for 47.9 per cent of total loans and it appears that the legislative framework introduced in April 2015 to help reduce the high level of NPLs has had little effect.
Meanwhile a 47 page report issued yesterday by the European Banking Authority (EBA) ‘EU-wide transparency exercise‘ provides detailed bank-by-bank data on capital positions, risk exposure amounts and asset quality on 105 banks from 21 countries of the European Economic Area (EEA).
NPLs in Cyprus at 137% of GDP
The report highlights the fact that non-performing loans in Cyprus account for 137 per cent of the island’s GDP compared with an average of 7 per cent in the rest of Europe.
Provisions very low at 32%
But when taking into account the low level of provisions made by banks for losses from these loans, the problem is worse. At 32 per cent, Cyprus has the third lowest coverage ratio of NPLs with provisions; only Latvia (at 28%) and Sweden (at 30%) have made lower provisions – but both countries have extremely low rates of non-performing loans.
According to the EBA’s report “In those countries where banks suffer a high level of impaired loans coupled with a low coverage ratio, banks may struggle to address asset quality concerns and clean up their balance sheets: low coverage ratios may result in a reluctance to resolve non-performing loans through their disposal or recovery due to material differences between potential transaction prices and net book values, leading to losses.”
John Hourican, the CEO of the Bank of Cyprus who was recently castigated by parliament president Giannakis Omirou for saying that the shenanigans of law makers delayed and diluted key laws aimed at helping banks collect on a huge number of bad loans, may have a point.