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€25bn waiting to be restructured in 2015

30/12/2014 11:00
Banks will focus on the restructuring of loans of billions of euros in 2015, in an effort to manage a large volume of non-performing loans accumulated on their balance sheets.

In 2014, the banks were burdened with another €2 billion in problematic loans, without having been able to accelerate the rate of loan restructuring.

As shown by the latest Central Bank figures, the total non-performing loans at the end of October 2014 amounted to €28.2 billion, which is 48.96% of total loans.
Since June 2013 when the Central Bank started to publish aggregated data for non-performing loans, the bank balance sheets have been burdened with additional NPLs of €7 billion - about 40% of the Cyprus GDP.

To address the volume of red loans, the CBC prepared detailed viable loan restructuring processes, in order to reduce the problem in the long run. Restructurings mainly include extension of the duration of the loans and a temporary reduction of the monthly installment.

In a few cases, banks have suspended the payment of interest, have reduced the interest rate or have erased part of the charges accumulated in loan agreements.

So far, however, the rate of restructuring remains quite low.

Of the total NPLs of €28.2 billion in October, only €3.1 billion were subject to restructuring. The restructured loans are 10.95% of the loans that are not serviced – a rate that increased marginally from October 2013 when it reached 8%.

The stagnation in restructuring is partly attributable to the anticipation of the stress tests, since restructurings have often capital costs for the banks.

Both the Central Bank and the commercial banks stated that after the completion of the stress tests, the restructuring process will be accelerated.

In banking circles, however, there is a question mark as to whether many of the loans granted are viable so as for a restructuring to make sense.

There is also the impression that without a framework for foreclosures and insolvency, debtors are waiting the issue to be clarified at a legislative level. The banks hope that the promotion of the foreclosures law and the insolvency framework will change the structure of incentives so as to accelerate the debt adjustment process.
The largest restructuring rates are observed in the construction sector as of the total €7.6 billion of loans 24% was restructured. In hotels and in real estate 16% and 15% of non-performing loans has been restructured respectively.

In loans for self-housing 9% of NPLs has been restructured and in other mortgages 8%.

In consumer loans, most of which are considered irrecoverable, the percentage of restructuring amounted to 6.6% for the non-performing loans.