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Non-performing loan laws inefficient

The legal frameworks introduced by Cyprus aimed at reducing non-performing loans (NPLs) are inefficient according to the European Stability Mechanism (ESM) in its annual report.

Cyprus non-performing loansONCE again Cyprus has been admonished for its ineffective efforts to reduce the high levels of non-performing loans (NPLs) in its banking system.

It its annual report the European Stability Mechanism (ESM) says that “Although the necessary legal frameworks aiming at reducing non-performing loans are now in place, they are still inefficient and little used.

“Instead banks are more and more in favour of offloading impaired assets from their balance sheets, mostly via debt-to-asset swaps, which deliver NPL reduction in the short-run.”

And points out that their approach “leaves banks with significant exposure to the real estate sector.” And that “Furthermore, new regulatory requirements challenge the banks’ outlook.”

The ESM concurs with other EU institutions and the IMF, which also consider that the foreclosure legislation passed in 2014 is ineffectual and needs reform.

In its annual report the ESM stressed that “To boost economic resilience, the country [Cyprus] needs to consolidate public finances by further reducing public debt and counteracting the concentration of economic activities by diversifying from the tourism and construction sectors.”

And that “Despite successive reforms, Cyprus must regain reform momentum to enhance the efficiency of the public sector and judiciary, while supporting fiscal sustainability.”

On a more positive note the ESM acknowledged that “Cyprus has achieved a solid recovery over the past few years.

“Cyprus enjoyed its third consecutive year of growth in 2017, outperforming most of the euro area. Cypriot public finances improved, supported by fiscal prudence and better-than-expected economic developments.”

Further reading

ESM Annual Report 2017 (Cyprus chapter)

Readers' comments

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  • MartynG says:

    SO, the wriggling and squirming re NPLs continues. There still seems to be a lack of serious, tightly managed action, just more window-dressing and good old fashioned ducking and diving. Many of these loans are still, after many static years, not being serviced, in many interest continues to roll up. This whole issue represents a large BLOT on the copy-books of borrowers and, worse still bankers. The problems will not ‘just go away’, serious Top Level action is needed now!

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