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Sharp increase in non-performing loans

A recently issued report on Cyprus issued by the International Monetary Fund (IMF) anticipates a sharp increase in non-performing loans following their reclassification to include all loans in arrears for more than 90 days.

IMF-building AN EVALUATION report published by the International Monetary Fund (IMF) a few days ago showed that non-performing loans (NPL) in Cyprus accounted for almost 30 per cent of total loans at end-March 2013.

Moreover, the depreciation in their value is only 30% compared to the 50% of other European banks, suggesting that profitability will be significantly impaired going forward. Furthermore, the reclassification of NPLs to include all loans in arrears for more than 90 days, as agreed with the troika, will lead to even higher levels of NPLs.

The report highlights the fact that the current private sector debt-to-GDP ratio is close to 280 per cent, which is the highest in Europe and approximately double the EU average and that corporate credit has been concentrated in the real estate and construction sectors.

The report also highlights that unemployment climbed to 17.3 per cent in June compared with 11.7 per cent a year before; the highest year-on-year change in the Eurozone. Unemployment, which the IMF anticipated would rise to 17 and 19.5 per cent in 2013 and 2014 respectively, currently stands at 15.5 per cent.

Further reading

Cyprus – IMF Country Report No. 13/293 (September 2013)

Readers' comments

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  • Denton Mackrell says:

    I agree with AndyP’s last comment. Just keep an absolute minimum of cash in Cyprus banks. Speaking recently to a banker and a lawyer in the UK (neither involved in any cases in Cyprus), they were gob-smacked at my summary of the JCE (Joint Criminal Enterprise) that has been and continues to be perpetrated in Cyprus against innocent property buyers. I make it my business to warn as many as I can in the UK finance sector about this issue and suggest we all do the same. Flood the editors of the overseas property and personal finance pages of the UK press with the overall horror story. The IMF and EU may be aware but the finance sector and Joe Public are still relatively innocent.

  • andyp says:

    It would appear that the majority of posters and indeed the IMF know what is ahead of us although many on this site could have and in fact did tell the EU some time ago.

    Read between the lines. The Cyprus banking crisis is far from over and in my opinion the scale has not yet truly surfaced.

    I only keep enough money in my Cyprus bank account to pay the monthly bills as I have no idea which bank is next but when the true level of NPLs is revealed …

  • Ivan Inklin says:

    Sorry but I still cant believe that the no-one is prepared to question the figures used in this report.

    According to the International Monetary Fund (IMF), the level of non-performing loans (NPLs), as a share in total loans, was still rather high in most EU countries in 2011. Median NPL ratio was at 6.0% in the EU-27, and at 5.6% in the euro area. So this has apparently jumped to 50% in 1 year!

    Not possible, is anyone going to own up to smudging the figures?

  • Andrew says:

    When and if they do adjust the figure to include loans in arrears for more than 90 days the truth of the cover up will be risible. It would be interesting to list non performers at say 180 days ,1 year 2 years etc etc. Then indicate the average compound interest owed. Cyprus probably went bust years ago!

    If and when the truth is published the banks might also care to explain why they think it is now just and proper to pursue innocent home buyers for a developers debt. Why did the banks not ensure they got paid for each individual home that a developer sold. Why did the banks conduct their business in such reckless and underhand way.

    The pigeons are indeed coming home to roost but not before they have flown over and s**t on us all from a great height.

  • Hector says:

    Ooh, are those pigeons I can see, coming home to roost perchance?

  • Costas Apacket says:

    I wonder just how many of these NPL’s were given to Limited Companies set up by Property Developers using Land and Properties as collateral that we have paid the PD’s for in full, and therefore these NPL’s are, by definition, unrecoverable, unless we, the ‘owners’ are turfed out onto the streets and our properties liquidated or we repay the PD’s debts to settle some of the NPL’s?

  • Martyn says:

    Seems to me there is a massive confusion ( deliberate? Hopefully not!) in the interpretations of the IMF Report?

    Why?

    Going to the document cited and Section 10, the Graphic Shows that whilst Cyprus NPLs are 30% of total loan book the PROVISIONING for these is only around 10% (of Total Loans) or approx 30% provisioning against NPLs. Hence against stated average Provisioning against NPLs in banks elsewhere of 50%, the alarm bells on Cyp should really be Ringing. They are, it seems to me, clearly UNDER provisioning. And also as others are suggesting, how realistic anyway is the calculation of overall NPLs??

    With many dormant loans, and rolled-up Interest, many of them large, we hear, within NPLs there may indeed be really serious cause for concern, particularly as many -most? – of these loans will be based on , and Secured On!, historic land and property values. Maybe Cyprus banks take Directors guarantees in order to try mitigate losses? But even if they do, how many of these will be a) enforceable? b) realisable?

    Overall, if I am anywhere near right in my calculations, a very sorry state of affairs indeed in RoC.

    Perhaps, Nigel, or others, can explain where I might be wrong? And if so How?

  • David Richmond says:

    See a previous article about Alpha Bank cutting deals with people having non-performing mortgages to try and keep the loans “alive” to get around the IMF forcing them to be classified properly.

    One Liasides (now bankrupt) development near Paphos has €6m Euros of mortgages that are dead. Wonder what the banks books show?

  • andyp says:

    Ivan- They had not been comparing like with like hence the 30% figure for Cyprus.

    EU standard period for a loan to be classified as an NPL is 90 days.

    Cyprus standard seems to have been based on-
    Whose loan is that?
    Should we tell anyone?
    They will probably pay next month.
    Oops that is well overdue we best keep quiet and maybe it will go away.

    When the true extent of the NPL’s are calculated based on the 90 day period the 30% will rocket.

  • Kayleigh says:

    Just wondering, does the IMF also know that this is only scratching the surface, and that the bank is trying to keep goodness knows how many non-performing loans alive by continually extending the repayment start dates, whilst continuing to charge interest of course.

  • Mike says:

    If NPLs are only 30% of all loans made then my belief is that the Country as a whole is in trouble. Defining NPLs as those not serviced for at least 90 days will make matters far worse and I would suggest the majority of those will be for millions if not tens or hundreds of millions which definitely will create further problems. It possibly goes some way to explaining how individuals with no obvious means of adequate income still live a lavish and expensive lifestyle with all the trimmings – it might just be fuelled by unaffordable credit which will need to be repaid or recovered at some point. That must surely only lead to a catastrophic breakdown of individual’s finances, unless of course more ‘artful ways’ are invented. Let’s hope those charged with the authority to resolve the problems are blessed with the ability and will to do so.

  • steve r says:

    Just the IMF way of juggling the figures to justify lending Cyprus the money.

  • Ivan Inklin says:

    I have re read this article a few times but still can’t see where my misunderstanding arises. It seems to be stating that NPLs in Cyprus are at 30% which is well below the rest of Europe at 50%!

    So 30% of borrowers in Cyprus are not repaying their loans, but for the rest of Europe it’s 50% , or half the borrowers, so Cyprus is well below that horrendous figure and therefore far superior in managing it’s lending?

    I simply do not believe it.

  • andyp says:

    Shock, horror, gasp. Rock my socks. Knock me down with a feather.

    We never saw that coming!

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