Debt restructurings slow down

Debt restructurings in Cyprus declined to €545 million in the first half of 2022, with loan renegotiations slowing down following a record year due to the Covid-19 pandemic and as non-performing loans ratio declines to the lowest point since the 2013 financial crisis.

According to data published by the Central Bank of Cyprus, analysed by CNA, debt restructuring in the period of January – June 2022 dropped by 59% compared with the first half of 2021 when loan renegotiations amounted to €1.42 billion.

Last year marked a record in debt restructuring in Cyprus with Cypriot banks upping the pace following the crisis of the Covid-19 pandemic and especially after the ending of a payment holiday, the largest in the EU in December 2020. Restructurings throughout 2021 amounted to €2.32 billion from €0.75 in 2020 and €0.57 billion in 2019, before the Covid crisis.

Restructurings in the first half of this year remain elevated by 18.4% compared with the respective period of 2020.

Large corporate loans lead the way

According to the CBC data, large corporate loans over €1 million had the largest share of restructurings in the first half this year by far with €467 million or 85% of total restructurings. Housing loans restructurings amounted to €58 million, followed by restructurings of corporate loans up to €1 million with €39 million, other loans with €10 million and consumer credit with €9.8 million. Large corporate loans restructurings historically hold the largest share, while in 2021 renegotiation of large corporate debt amounting to 1.78 billion which corresponded to almost 77% of total restructurings.

Restructuring affected by NPL sales

Debt restructuring in the first half of 2022 was also affected by non-performing loan sales concluded by Cyprus’ two largest banks. Bank of Cyprus in November 2021 sold a portfolio of NPLs with a contractual value of 0.99 billion (Helix 3), while Hellenic Bank concluded its first major NPL sale in April 2022, disposing NPLs with a contractual value of €1.32 billion.

These loans were “carved out” from the banking system to credit acquiring companies and debt servicing companies with banks der-risking their balance sheets and consequently reducing the pressure on their capital.

Based on the latest data published by the CBC, the ratio of NPLs to total loans in the Cyprus banking system in the end of March 2022 stood at 11.4% (as defined by the EBA directive) with total NPLs amounting to €2.92 billion.

However, in its financial stability report for 2021, the CBC warned although no particular increase in NPLs was recorded due to the Covid pandemic, the new geopolitical crisis due to the war in Ukraine “brings the risk of NPL increase back in to the fore.”