Non-performing loans fall by €722m in third quarter

The Central Bank of Cyprus (CBC) announced on Friday that the total amount of non-performing loans (NPLs) decreased by €722 million at the end of the third quarter of 2021, reflecting a quarter-on-quarter decrease of 14.4 per cent.

Further, total loans decreased from €28.388 billion at the end of the second quarter to €27.902 billion at the end of the third, reflecting a decrease of €486 million or 1.7 per cent.

As a result of the fall in NPLs, the ratio of non-performing loans to total loans has decreased from 17.6 per cent at the end of the second quarter to 15.4 per cent at the end of the third quarter of this year.

Moreover, the coverage ratio reached 45.7 per cent at the end of the third quarter compared to 46.8 per cent at the end of the second quarter.

It is noted that between December 31, 2014, and September 31, 2021, non-performing loans decreased by a whopping €23 billion or 84.3 per cent.

The CBC explained that the downward trend in NPLs in the third quarter of 2021 was attributed to the sale and transfer of loan portfolios to credit-buying companies, to loans that have been successfully restructured and reinstated in the category of loans at the end of their monitoring period, as well as loan repayments, including debt swap agreements with assets (real estate).

In addition, loan write-offs, made either in the context of restructuring and often concerning amounts for which there are precarious provisions in the accounts of banks, or concerning non-contractual or “accounting” write-offs against amounts already included, also contributed to the decrease in NPLs.

The total loan amount restructured by the end of the third quarter of 2021 came up to €3.911 billion, of which € 2.085 billion are still included in the category of NPLs.

Of the total loans to banks by the end of the third quarter, €14.626 billion concern corporate loans, of which €1.762 billion are NPLs.

Regarding household loans, these amounted to €11.130 billion at the end of the third quarter of 2021, of which €2.187 billion are related to non-performing loans.

The CBC noted that when determining NPLs, banks were required to apply the definition used by the European Banking Authority (EBA).

The EBA stipulates that when a non-performing loan is restructured, it is not automatically transferred away from this categorisation, but remains unattended in the category of non-performing loans for an additional period of at least 12 months, even if the borrower follows the newly agreed repayment schedule without any delays.

This means that a part of the restructured loans is still deemed as non-performing even if the borrower adheres to the new repayment schedule.