Non-performing exposures (NPEs) within the Cypriot banking sector dropped to €1.70 billion at the end of June, down from €1.80 billion in March, according to the Central Bank of Cyprus (CBC).
According to the CBC, the coverage ratio of NPEs with provisions for bad debts increased to 55 per cent, equivalent to €0.90 billion, at the end of June, compared to 53.3 per cent at the end of March.
The CBC attributes the decrease in NPEs during the second quarter of 2024 primarily to the write-offs of loans related to restructurings or non-contractual “accounting” write-offs against amounts already included in provisions.
Moreover, the reduction is also linked to the sale of small NPE loan portfolios and loan repayments, including debt-for-asset swap agreements.
Additionally, the CBC also pointed out that some loans have been successfully restructured and reclassified as performing after the monitoring period.
What is more, by the end of June 2024, the total amount of restructured loans by licensed credit institutions stood at €1.40 billion, of which €0.70 billion is still classified as non-performing.
It should be noted that to determine NPEs, credit institutions are required to apply the definition adopted by the European Banking Authority (EBA).
Under this definition, when a non-performing loan is restructured, it does not automatically transfer to performing status but remains monitored in the category of non-performing loans for an additional period of at least 12 months.
This takes place even if the borrower adheres to the new repayment plan without delays.
Therefore, according to this definition, a portion of restructured loans continues to be classified as non-performing, despite the borrower complying with the new repayment terms.
