The Troika of international lenders expressed concern over Cyprus’ slow progress in reducing legacy Non-Performing Loans (NPLs) and persistent high debt levels.
The recent visit of the Troika’s technical delegation to Cyprus once again highlighted the country’s ongoing economic challenges, primarily stemming from a significant stock of legacy Non-Performing Loans (NPLs) and elevated public debt levels.
Despite a gradual reduction in NPLs in recent years, a substantial backlog remains, posing a continued burden on the economy. Private debt also remains comparatively high, hampering financial flexibility for households and businesses.
According to recent reports, the Troika has voiced serious concerns over Cyprus maintaining one of the highest NPL ratios in the Eurozone. These concerns pertain not only to NPLs still held within the banking system, but more critically, to those outside it—mainly in Vulture Funds. As of the latest figures, around €19.1 billion in NPLs are held by these entities, with an additional €1.7 billion still on banks’ balance sheets. The failure to resolve or write off these loans continues to constrain credit availability and reduce liquidity in the economy.
The Troika also underlined that private debt in Cyprus remains high by European standards. This prevents some individuals and businesses from fully participating in the country’s economic growth. By the end of 2024, approximately 72,000 borrowers had NPLs managed by Debt Servicing Companies, with fewer held by banks.
Impact on the Cypriot economy
The large volume of unresolved NPLs, coupled with high public debt, acts as a brake on economic growth. Ongoing uncertainty surrounding the foreclosure process and the sluggish pace of debt resolution undermines investor confidence and delays new investment. Furthermore, the absence of a coherent strategy to further reduce public debt risks increasing borrowing costs for the state, further limiting future growth potential.
A pivotal year ahead
The year 2025 is being seen as a critical juncture. The Troika has urged Cypriot authorities to adopt decisive measures to address NPLs and reduce private debt. Key priorities include:
- Accelerating foreclosures and restructurings: Swift resolution of legacy NPLs is essential to unlock growth.
- Judicial reform: Foreclosure procedures must become quicker and less prone to exploitation by strategic defaulters.
- Targeted policies for private debt reduction: In a country growing at over 3% annually, debt relief and restructuring strategies are vital to allow broader economic participation.
- Stimulating economic activity: An economy unburdened by legacy debt empowers banks to increase new lending, fuelling investment and consumption.
In short, Cyprus stands at a turning point where bold reforms are essential to leave behind the lingering shadows of its past financial crisis.
