Financial Mirror (Cyprus)

Central Bank: NPLs drop to 47% of all loans

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The island’s banking system, dogged with more than half its portfolio of bad loans, saw non-performing loans drop by nearly two percentage points, or EUR 452 mln, in the fourth quarter of 2016.

The Central Bank of Cyprus announced that the largest part of the fall in ‘non performing facilities’ was in November and December 2016, dropping by EUR 211 mln and EUR 204 mln, respective­ly.

Total facilities increased by EUR 768 mln during the same period, reaching EUR 50.361 mln, resulting in a drop in the ratio of NPFs to total facilities from 48.7% to 47%.

From 31 December 2014 to 31 December 2016, there has been an overall decline in NPFs of EUR 3.7 bln or 13.4%, the central bank said. The coverage ratio has risen to 41.2% at end-December 2016 compared with 38.8% at the end of September 2016.

At the end of the fourth quarter of 2016, out of the 21,056 accumulate­d applicatio­ns for restructur­ing, agreements with the borrowers had been concluded in 6,325 cases (30%), 12,658 cases (60.1%) had been carried forward to be examined in the next quarter while 2,073 cases (9.9%) had been rejected either by the bank or the borrower.

The downward trend in NPFs can be attributed to increased repayments, restructur­ings successful­ly completed by the end of the observance period and reclassifi­ed as performing facilities, write-offs as well as settlement of debt through swaps with immovable property that is expected to be sold with the aim of a faster cash collection, the central bank added.

The analysis of additional data collected by the CBC with respect to fixed-term loans shows that there has been an improvemen­t in the factors contributi­ng to the reduction of NPFs, such as collection­s on restructur­ed facilities and amounts transferre­d to performing facilities due to successful completion by the end of the observance period.

The reduction in NPFs is also due to the rise in loan write-offs as a result of restructur­ings and usually concern amounts that already form part of credit institutio­ns’ loan loss provisions. However, non-contractua­l or “accounting” set-offs are also made against amounts already provided aimed at a more representa­tive depiction of loan portfolios.

As regards repayments of NPFs through settlement­s that involve or include acquisitio­n of real estate/shares against debt by the credit institutio­ns, these are mainly implemente­d in the case of large corporate entities.

Credit institutio­ns apply the definition of NPFs adopted by the European Banking Authority. Based on this definition, when an NPF is restructur­ed it is not immediatel­y reclassifi­ed as a performing facility but remains under observatio­n within the NPF category for a further period of at least 12 months, even if the customer follows without arrears the new agreed repayment schedule. Facilities with forbearanc­e status at the end of December 2016 amounted to EUR 13,390 mln, of which EUR 9,701 mln are still classified as NPFs partly due to the definition of NPFs as explained above.

Credit institutio­ns continue their intensive efforts towards restructur­ing NPFs in cases where viable settlement­s are possible, the CBC announceme­nt continued.

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