Filenews 2 June 2025 - by Theano Thiopoulou
Despite significant improvements in the banking system, the shadow of non-performing loans (NPLs) continues to weigh heavily on the Cypriot economy.
As recorded in the European Commission's latest In-Depth Report on Cyprus, although progress has been made, the problem of NPLs remains unsolved in terms of overall economic stability, with the need for structural continuity being imperative.
Despite the positive steps, the European Commission clearly points out that stability is not a given.
The high balance of NPLs outside the banking system, the difficulty of resolving cases through the courts, and the possible pressure on the real estate market make it clear that the problem remains active.
The report recalls that signs of economic pressure on Cypriot banks had already begun to become visible as early as 2010, with the 2012-2013 crisis being the culmination of a process of gradual undermining of banks' solvency.
The explosion of NPLs, combined with inadequate provisions, falling property prices and weak legal foreclosure tools, led to the proportion of non-performing loans to over 50% of total loans in 2015.
Impressive impairment, but not a solution
The EU recognises that Cyprus has achieved a significant reduction in NPLs. 92% of the total stock of NPLs (or €19.66 billion) has been transferred to Credit Acquisition Companies (SPDs), with banks now holding just 8% (€1.637 billion).
At the same time, the NPL ratio of total bank loans fell to an all-time low of 3.3% in 2024. However, the Commission stresses that these figures should not lead to complacency.
The troubled loans did not disappear – they were simply transferred. SPDs currently manage NPL portfolios corresponding to 58% of GDP, with 85% of them covered by collateral, mainly real estate.
The overconcentration of real estate in SPDs, according to the report, may put pressure on both availability and market prices.
The case of KEDIPES
The state-owned KEDIPES, which was created in 2018 to manage the NPLs of the Cooperative Bank, has resolved 26% of its portfolio by mid-2024. Full resolution is expected – subject to reservation – by 2030.
As the Commission points out, the sovereign risk is limited due to the specific structure of the agreement, but the success of the project remains uncertain, especially in view of a long delay in recoveries.
The implementation of the revised foreclosure framework in 2024 and the introduction of the Mortgage-to-Rent scheme are listed by the Commission as positive initiatives, but with limited impact for the time being.
The Commission underlines that foreclosures are slow and that strategic defaulters continue to take advantage of delays.
These delays, combined with the lack of title deeds, continue to act as a brake on the resolution of cases.
