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NPLs remain problematic says IMF

The high level of non-performing loans (NPLs) remain a problem for the Cyprus banking sector despite the strong growth boosting the island’s economy says the IMF representative in Cyprus.

non-performing loans (NPLs)THE STRONG growth boosting the Cypriot economy has failed to produce the expected reduction of the high stock non-performing loans (NPLs), hampering the island’s banking system, IMF representative in Cyprus, Vincenzo Guzzo, has said.

“We have clearly a strong economic recovery but that has not produced the reduction of NPLs that someone could have expected and certainly that reflects the weak payment discipline,” Guzzo told the 5th Cyprus banking forum.

Despite three years of GDP growth after the 2013 crisis, Non-performing Loans amount to 46% of total loans in the Cyprus banking system, placing the island second after Greece in the EU.

Guzzo noted that strategic default, borrowers who have the capacity to repay their loans but refrain from doing so, is associated with the lengthy inefficient procedure in enforcing legal claims and also “a perceived blanket protection of primary residence.”

He also referred to the World Bank’s data, according to which contract enforcement takes 1,200 days in Cyprus, while foreclosures take 10 years, which is the longest in the EU.

“Weak enforcement preserves poor preserves, poor payment discipline as the dominant strategy for many borrowers,” he said.

He called for an ambitious strategy to tackle both NPLs and high private debt, stressing that growth alone is not sufficient to reduce NPLs.

On his part, George Syrihas, Executive Board Member of the Central Bank of Cyprus, agreed that the pace of NPLs reduction is slow relative to the Cyprus growth rate, but cautioned that one should not press for fast NPLs reduction.

“The pace we restructure NPLs is critical,” he said.

“We made progress. We had €6 billion reduction but progress is not fast enough given the progress of the economy,” he said.

But he underlined that “the pace with which we restructure loans is critical. We need to do much more because the economy is growing but there is a level on how fast we reduce NPLs.”

Readers' comments

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  • K says:

    Yes it is strategic in the same way it’s logical to walk away from any abuser. My lawyers have instructed me to ignore the threatening correspondence. It’s obvious the products were missold and the banks must pay compensation. However, what is the alternative when the system allows never-ending postponement of court cases.?

  • embapaphos says:

    @John, whilst credibility will be a dream for Cyprus you still have numerous Russians and until recently Chinese persons queuing up to invest in the island. You will cringe at the sums I hear being paid by Russians willing to invest in property.

  • John Mann says:

    SWISS Franc loan contracts involved thousands of borrowers in default,, both in Cyprus and other Balkan and European countries. This particular banking product, promoted especially in the early 2000’s, resulted in a severe socio-economic problem due to the depreciation of the exchange rates.

    Swiss Franc mortgages interim judgement

    Nigel above is a copied item of yours back in January this year, now all of a sudden you are quoting around only 800 borrowers, have the rest passed away or won the lottery and paid up what they owe? Someone is blowing smoke up peoples a—se

    Cyprus will never be credible again until someone does away with the smoke and smashes up the mirrors.

    Ed: There are probably many thousands of buyers in Cyprus and the Balkan countries (i.e. Bulgaria, Macedonia, Albania, Montenegro, Croatia, Bosnia & Herzegovina, Serbia, and Kosovo) affected.

    Ignoring the fact that these cases of alleged mis-selling have yet to be proven in court, to say that a great deal of NPLs arose because the banks and lawyers wilfully misled borrowers is a gross exaggeration.

    Check out the reports & figures on the Cyprus Central Bank website.

  • John says:

    Well said Richard! – Nigel may I correct you here its not 100’s that were mis-sold CHF mortgages its actually 1000’s of us who were mis-sold CHF Mortgages!

    Ed: I’m aware of around 800 people who allege they were mis-sold CHF loans (the first cases are due to be heard in court next year.) Even if there were 20,000 that would mean each person borrowed € 1,100,000 to account for all the non-performing loans.

  • Richard says:

    A great deal of NPLs are NOT “strategic default”. They arose because the banks and lawyers wilfully misled borrowers.


    Every time I see this gradual ‘creep’ towards legitimising what banks did in order to ‘fast track’ sorting NPLs I will keep pushing back on the ORIGINAL source of the problem:

    The banks:


    The IMF need to understand this. Just in case it’s still not clear and/or needs pushing (again) through the reality distortion filter around this issue:


    Ed: I appreciate that hundreds of people allege they were mis-sold loans in Swiss Francs (and Japanese Yen). The first cases are scheduled to be heard in court next year. Currently non-performing amount to around €22 billion – that’s around 46% of all loans in the Cyprus banking system and 100% of the island’s GDP. Loans alleged to be mis-sold are only a small part of the total.

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