Filenews 10 March 2025
The problem of Non-Performing Loans (NPLs) remains one of the most important risk factors for the stability of the financial sector in the EU, with the European Commission warning of a possible new increase in these loans. Despite the gradual reduction of NPLs in banks in recent years, economic uncertainty and geopolitical tensions make the environment volatile; with an increased risk of new inflows of non-performing loans.
The European Commission's NPL Advisory Committee continues to monitor the situation closely, providing guidance to Member States on how to effectively manage NPLs in order to preserve financial stability and strengthen the resilience of the banking sector. The focus is on improving foreclosure legislation, speeding up distressed loan management procedures and developing mechanisms to prevent the creation of new NPLs.
In Cyprus, the NPL problem remains a drag on the economy. Although the NPL ratio in banks has declined significantly in recent years (but remains significantly above the EU average), more than €19.9 billion of NPLs are now held by Credit Acquiring Companies (NPLs), while another €1.7 billion continue to weigh on bank balance sheets. The transfer of these loans from banks to SPDs may have improved bank portfolios, but it has not provided a real solution to the problem, as the burden of private debt continues to constrain economic activity.
There is now a general perception that more decisive action is needed, as uncertainty around the foreclosure framework and continued political interventions have slowed down the process of consolidating the financial system. At the same time, the state has implemented many plans to protect vulnerable borrowers with NPLs and now the focus should turn to so-called strategic defaulters.
