Latest Headlines

EC report highlights non-performing loans

Efforts to restructure non-performing loans have not yet shown tangible results although financial institutions have stepped up their debt restructuring efforts according to a European Commission report.

non-performing loansTHE EUROPEAN COMMISSION has sent a warning regarding the course of debt restructuring in the Cypriot banking system, saying that “efforts to restructure non-performing exposures have not yet shown tangible results.”

Financial institutions have stepped up their debt restructuring efforts, but the results have been mixed so far, the Commission report said, adding that the share of restructured loans increased during 2015.

“However, the ratio of non-performing restructured loans to total loans increased as well, suggesting that many restructuring operations are not sustainable and are non-performing,” the Commission underlined.

In absolute terms, the rise in restructured loans was almost fully matched by that of non-performing restructured loans.

By September 2015, the restructured loans to companies stood at 24.6%, while performing loans were at 6.8% of the total loans.

In the same month, non-performing loans to households were at 17.5% and restructured loans at 7.7%.

In addition, the Commission stressed that the enhanced restructuring efforts are still falling short of the restructuring targets set in agreement with the Central Bank of Cyprus.

“On the other hand, banks’ performance is in line with targets set for early arrears and new non-performing loans. This suggests that banks have become more pro-active in preventing early arrears from turning into bad loans” it noted.

The Commission said that “existing backlogs and inefficiency in the justice system are likely to slow down the resolution of the non-performing loans”.

To bring non-performing loans down to sustainable levels, the infrastructure (auction rooms) and institutions (number of auctioneers and insolvency practitioners, insolvency service) have yet to be adequate and become operational, the report said.

“Despite the updated directive on loan provisions and the increased focus on the debt servicing capability of borrowers rather than on collateral, a large share of loans still end up non-performing” according to the report.

Between 20% and 40% of loans granted in the course of 2013 and 2014 were non-performing by the end of the year in which they were granted, it said.

“This highlights the challenges that exist in identifying viable borrowers and investment projects in the context of excessive private sector indebtedness”.

The Commission said that the creation of a credit register in 2015 might help banks avoid lending to already troubled borrowers, although it would not help assess their repayment capacity, as it only collects data on liabilities.

However, it stressed that “there are now increasing pressures for banks to increase lending, potentially under-pricing risk, as ample and still rising liquidity is penalised by the negative rates on the ECB deposit facility”.

According to the Commission, full implementation of the foreclosure legislation has been delayed by slow progress in selecting locations for auctions, but the first auctions are expected to be held from the second quarter of 2016.

As regards personal insolvency, by end-February 2016 490 Debt Relief Order applications had been made, and there were only 8 requests for Personal Insolvency Arrangements.

“There has been a commitment by the Cypriot authorities, in the context of the economic adjustment programme, to conduct an assessment of the functioning and of the first experiences of the private sector debt restructuring and foreclosure frameworks, with the aim of defining an action plan of modifications to those frameworks to correct any deficiencies, but as of mid-March 2016 such an assessment had not been initiated,” it said.

Further reading

European Commission ‘Country Report Cyprus 2016’

Readers' comments

Comments on this article are no longer being accepted.

  • Julia Stein says:

    I’m afraid that this tendency would not restore property market in Cyprus. I doubt that the area would stay an attractive for home and foreign investors. My sister considered to purchase a house in Limassol, because she read in the article
    Property in Cyprus: what to know and where to buy in 2016 that there are no obstacles for foreign citizens applying for a mortgage and the average interest rate is around 3%. Is it true? And why are there so many non-performing loans?

    (Ed: Assuming your sister is an EU national, there are no obstacles to buying property in Cyprus. Non-EU citizens need permission from the Council of Ministers. She needs to check the banks for lending rates, which are amongst the highest in the EU. If she needs a loan it would be less costly to take a second mortgage. Following the meltdown of the economy some individuals can no longer afford their loan repayments and developers had an unsustainable business model. I suggest you search the archives for further details.)

  • Lou says:

    You know our story Nigel, next week we have to travel to London to have a charging order on our UK home by BOC. When we could no longer pay the mortgage in 2010 after brother in law we bought villa with went bankrupt and walked away, we kept up payments alone for as long as could, selling whatever we possibly could. Bank put up interest rate from 5 percent to 14-16 percent. Wanted 60 thousand to renegotiate, this was impossible.

    No deeds, also since found out there is a mortgage on the property by developer.

    It seems now owe just under 500000£, mortgage was for €100000.How owe this don’t know.

    It’s a long story,but very unfair what the bank are doing, if we lose our home next week, will be mission in life to warn others of the dangers of buying in Cyprus. Pleaded with bank offered all we could, they have now taken back villa and it is in process of being sold. We have been shown no common humanity whatsoever by bank. Maybe we will be homeless, but others will know about the corrupt banks, so maybe some good will come out of what has happened to us.

    (Ed: I’m very sorry to hear of your situation. I know it will be of little comfort to you but I can assure you that you’re not alone.)

  • Andante says:

    Our case against the Alpha Bank and our Paphos lawyer is with with one of the leading firms involved in this process. As far as we know no cases have yet been heard- the backlog appears to go back to 2010. It is a very long queue with continual adjournments.

  • john says:

    A very interesting question Linda – I would have thought some actual factual information would be emerging!

    Does anyone know of someone who has got a potential date for their court case against Alpha Bank?

    (Editor’s comment: Provisional dates for the court cases in Cyprus were set towards the end of 2013, but there have been a number of adjournments. I suggest you contact your legal representatives for their opinion when cases will be heard.)

  • Linda says:

    Does anyone know of someone who has got a potential date for their court case against Alpha Bank?

    (Editor’s comment: Provisional dates for the court cases in Cyprus were set towards the end of 2013, but there have been a number of adjournments. I suggest you contact your legal representatives for their opinion when cases will be heard.)

  • Steve R says:

    I do hope these figures take into account the NPLs taken out by developers and not just house purchasers.

    (Editor’s comment: you can view the full details of non-performing loans via the Central Bank of Cyprus website.)

  • Mike says:

    Are we surprised? I don’t think so.

  • The views expressed in readers' comments are not necessarily shared by the Cyprus Property News.

  • Text size

Back to top