Slight increase to 11.4% in the ratio of Non-Performing Loans

A slight increase to 11.4% was recorded in the ratio of Non-Performing Loans to total loans for the first quarter of 2022, Central Bank of Cyprus (CBC) data show, compared to the last quarter of 2021, when the ratio had fallen to 11.1%.

According to the updated aggregate Cyprus banking sector data (non-performing loans data), published at CBC's website on Thursday, at the end of Μarch 2022, there was a decrease of €77 million or 2.6% in aggregate NPLs compared with the end of December 2021.

However, total loans decreased by €1,457 million or 5.4% from €27,012 million at end-December 2021 to €25,555 million at the end of March 2022 mainly due to deleveraging initiatives mainly from performing exposures.

As a result, although the NPLs decreased, the ratio of NPLs to total loans marginally increased from 11.1% at end-December 2021 to 11.4% at the end of March 2022.

The coverage ratio stood at 45.7% at end-March 2022 compared with 43.1% at the end of December 2021.

CBC notes that during the period between 31.12.2017-31.03.2022, there has been an overall reduction in NPLs of €17.7 billion or 85.8%.

According to CBC's press release, the downward trend in NPLs exhibited in the first quarter of 2022 can be attributed to loan repayments (including debt-to-asset swaps) and to positive migrations of loans which have been successfully restructured and reclassified as performing (cured) at the end of the probation period.

Moreover, it adds, loan write-offs have also contributed to the decrease in NPLs, which take place either in the context of restructurings and usually concern amounts that already form part of credit institutions’ loan loss provisions or to non-contractual or "accounting" set-offs made against amounts already provided, aimed at a more representative depiction of loan portfolios.

Total restructured loans at end-March 2022 amounted to €3,314 million, of which loans of €1,403 million continue to be classified as NPLs, the Central Bank says.

CBC notes that credit institutions apply the definition of NPLs adopted by the European Banking Authority. Based on this definition, when an NPL is restructured it is not immediately reclassified as a performing facility but remains under observation within the NPL category for a further period of at least 12 months, even if the borrower strictly adheres to the new agreed repayment schedule.

Therefore, according to this definition, a part of the restructured loans remains non-performing, even if the borrower adheres to the new repayment schedule.