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Non-performing loans highest in Europe

Non-performing loans (NPLs) in the Cypriot construction and real estate sectors are amongst the highest in Europe with construction NPLs standing at 75 per cent and real estate NPLs standing at 39 per cent at the end of March.

Cyprus: Non-performing loans highest in EuropeALMOST a decade after the 2008 real estate bubble bust, Cyprus’ ratio of non-performing loans in the real estate and construction sector remain among the highest in the European Union (EU) and European Economic Area (EEA), the European Banking Authority said.

The non-performing loans ratio of construction companies was 75 per cent in March down from 76 per cent in December which was in both cases the highest in Europe, the EBA said in its quarterly Risk Dashboard report on its website. That of the real estate sector stood at 39 per cent at the end of March, the third highest, down from 43 per cent in December.

The construction and real estate sector in Cyprus, both benefiting from the government’s scheme which allows investors, also in real estate, to obtain a Cypriot passport or a permanent residence permit depending on the size of their investment, saw the size of their respective non-performing loans fall at the end of March to €3.2bn from €3.4bn a quarter before and to €1.4bn from €1.6bn respectively, according to EBA.

The Cypriot government is also supporting both demand and supply in the real estate and construction sector via tax cuts and town planning relaxations. Debt-to-asset swaps, which resulted in banks onboarding more than €2.1bn in real property since 2015, has also helped reduce loan arrears in the island’s construction and real estate sector.

Cyprus’ construction sector output rose last year 25 per cent to €752.9m compared to 2016, which is roughly one third of the all-time high of 2008. Output in the real estate sector rose 2.8 per cent to €1.6bn.

The delinquent loans ratio of the construction sector in Greece was the second highest in Europe at the end of the first quarter with 67 per cent followed by Italy’s 47 per cent and Malta’s 41 per cent, according to the EBA figures. In the real estate sector, the highest ratio was Greece’s 56 per cent followed by Bulgaria’s 40 per cent.

The average non-performing loans ratio in the construction and real estate sectors at the end of March in the EU and EEA was 20 per cent and 5.2 per cent respectively, the EBA said.

The lowest ratios in construction at the end of the first quarter were Norway’s 0.9 per cent, followed by Sweden’s 2.2 per cent and a 3.1 per cent in Denmark, EBA said. In the real estate sector, Sweden boasted a negligible 0.1 per cent, the lowest in Europe, followed by 0.7 per cent in Norway and 0.9 per cent in Denmark.

Total non-performing loans stood in March at €19.9bn or 43 per cent. They are considered a major risk for the Cypriot economy, which expanded last year 3.9 per cent and emerged in 2015 from a prolonged recession which led to a twin fiscal and banking crisis in 2013. On July 8, the parliament passed legislation amending the foreclosure and insolvency framework in an attempt to help banks improve borrower discipline and tackle strategic default.

The banking sector’s exposure to construction was 19 per cent in March, which was three times the average in Europe as well as the highest, the EBA said. Exposure to the real estate sector was 16 per cent, well below the average of 27 per cent.

Further reading

European Banking Authority Risk Dashboard Q1 2018

Readers' comments

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  • Who Gives says:

    Ned C@ Full agree with you that the next Cyprus Financial Crisis is not far away

  • NedC says:

    The ultra-high level of NPLs for the construction sector is a clear warning sign for the government. Come the next financial crisis the country’s economy will be all but wiped out.

  • MartynG says:

    And the Cyprus Government rocks on, it seems, with so far only ‘ ‘light touch” regulation’ on the Casino Operations being opened across the country and ‘Coming Soon’ in a megaway at the Ladies Mile End of Limassol. Even children it seems are to be allowed to attend that Casino, albeit in a separate area from their gambling parents – but seriously further spreading the gambling ethos in a country already noted for gambling tolerance.

    Good though that yet another Oil/Gas exploration is set to get underway, better success in that essential long term economic contributor would perhaps help reduce excesses, poor financing and control elsewhere in the Cyprus economy?

  • dagwood says:

    I think we have inadvertently touched here upon the root of the ‘Title Deeds’ problem.
    It is not the banks, the legal system, the Land Registry, parliament or anything else. The (untouchable) developers have got the whole thing sewn up by retention of title deeds or spurious ownership of property all over the island.

  • Deanna says:

    Well, look on the bright side, at least we’re ‘top’ of something……
    And it’s no-news, is it, that 75% of the debt belongs to the developers.

    The burning question – will anything change???

  • MartynG says:

    Methinks they should re-define NPLs to ‘Not Properly Leveraged”! What an embarrassment to have the very Worst NPLs in the EU – even worse than Greece!!

    …….. and at the same time not at all sure about further ‘Town Planning Relaxations’ after seeing the crazy situation already being developed, encouraged!, along Limassol’s attractive but already busy sea-front. And then hear similar high-density buildings being discussed in Pafos.

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