Filenews 19 August 2025 - by Theano Thiopoulou
The stock of non-performing loans in the banking system remains stable, confirming the forecasts of the banks and the Central Bank – about a year and a half ago – that the accuracy through the increase in inflation will not affect the servicing of instalments by households and businesses. Perhaps the most important element is that the value of non-performing loans that are more than three months in arrears remains at the same levels from 2024. This shows that the loans that are in the "antechamber" of the "red loans", i.e. they move in that grey zone that have exceeded 90 days of delay, are stable compared to last year. The data announced yesterday by the Central Bank show that at the end of May 2025, the non-performing loans ratio (NPLs) of the banking sector remained stable at 5.9%, compared to April 2025. The coverage ratio of NPEs with bad credit provisions increased to 61.0% at the end of May 2025 compared to 60.7% at the end of April 2025. Total loans that were restructured at the end of May 2025 amounted to €1.3 billion, of which loans of €0.7 billion are still included in NPEs.
One could say that in the banking system there has been a feat in reducing the number of non-performing loans, which have come off bank balance sheets either because they have been sold to credit acquisition companies, or they have been regulated or have been successfully restructured or there are also loan write-offs. However, it should be clarified that the reduction of bad loans from banks' balance sheets due to their sale does not mean that the problem has been solved because they are still and remain in the economy.
An important element from the analysis of the data is that out of the €25.4 billion. loans, loan arrears of more than 90 days are €1.16 billion. and total non-performing loans are €1.49 billion. end of May. From the loans with a delay in the payment of the instalment for more than three months, the companies derive €483 million and from households, €649 million. Loan restructurings of households amounted to €428 million and for businesses €754 million. The change in the picture that has taken place since 2019 is significant when total loans were €32.10 billion, total loans with a delay of more than 90 days were €7.42 billion, total non-performing loans were €8.97 billion and the total loans that were restructured amounted to €5.45 billion.
In its financial stability report, the Central Bank clarifies that progress in further reducing non-performing loans is uneven, with smaller banking institutions facing greater difficulties in resolving the relevant portfolios. Specifically, on 31 December 2024, the NPE ratio of less significant credit institutions stood at 21.0%, remaining significantly higher than the 3.5% recorded by the corresponding NPE ratio of significant credit institutions. The central bank indicates that the projected further de-escalation of interest rates is expected to support the credit rating of households and firms, enhancing the sustainability of the loan portfolio, although it is expected to reduce the profitability of credit institutions to some extent, due to the high dependence of their income on interest.
The report also notes that the strengthening of employment and earnings in these sectors has improved the financial position of households and firms, leading to a reduction in NPEs and strengthening the resilience of the banking sector. Another important fact is that the coverage ratios of the Cypriot banking sector for MEXs compare positively with the corresponding indices of the EU-20 countries, both for loans to households and to non-financial corporations.
