According to the latest figures released by the Central Bank of Cyprus (CBK) on Friday, September 20, the volume of non-performing loans (NPLs) in Cyprus dropped from €177.6 billion in May to €166.9 billion in June.
This marks a €107.1 million decrease in NPLs within the Cypriot banking system compared to the previous month, showcasing some improvement in the sector.
As per the European Banking Authority’s guidelines, loans are considered non-performing if they have been restructured and remain classified as such for at least one year. The ratio of non-performing loans to total loans decreased to 6.9%, amounting to €1.8 billion by the end of June, down from 7.3% at the end of March. During the same period, the NPL coverage ratio increased from 53.3% (or €0.9 billion) to 55%, indicating improved management of these loans.
Sector-specific changes in NPLs showed varied trends. For instance, in the wholesale and retail trade sector, problem loans dropped from €166.1 million to €150.8 million, while the transport and storage sector saw an increase from €232.7 million to €250.5 million by the end of December 2023. In the construction sector, NPLs fell significantly from €94.6 million to €57.7 million during the same period, while in the hotels and restaurants sector, overdue loans declined from €52.4 million to €42.5 million.
In real estate, the volume of problem loans decreased from €102.1 million at the end of last year to €92.2 million by June 2024. Meanwhile, the professional, scientific, and technical activities sector saw a slight increase, with NPLs rising from €46 million to €50.8 million.
As a reminder, non-performing loans refer to loans that are more than 90 days past due and are classified as unsatisfactory or unlikely to be repaid. While the situation in the Cypriot banking sector is showing gradual improvement, NPLs remain a key challenge, posing risks to the stability of the financial system.
Banks with a high volume of bad loans are often required by the European Central Bank to hold more capital, which can limit their ability to lend and, consequently, slow down economic activity. Despite ongoing efforts to manage NPLs, they continue to be the main hurdle for strengthening Cyprus’ banking sector.
Source: Stockwatch, dom.com.cy