Cypriot household and business arrears remain high despite data confirming a significant drop in private debt, according to the Cyprus Central Bank.
Private debt – excluding banking institutions – dropped to 226.6% of the country’s GDP at the end of March 2018 from 240.3% at the end of the previous quarter.
Debt ratios of households and non-financial corporations show a gradual decrease dropping to 104.7% and 121.9% of Cyprus’ GDP respectively at the end of March, compared to 109.4% and 130.9% of GDP, at the end of December 2017.
Loans issued by banks to the domestic non-financial private sector dropped to 187.1% of GDP at the end of March from 201.6% in December.
The net worth of households declined marginally to 108.7% of GDP in Q1 2018 compared to the previous quarter (109.8% of GDP).
GDP has grown mainly due to the rise in domestic demand, both investment and private consumption, as well as the acceleration in exports of services, notably tourism.
GDP grew significantly in Q1 2018, with the real GDP (seasonally adjusted) widening by 3.8% on an annual basis, 4% compared to the previous quarter and 4% compared the corresponding quarter of 2017.
According to the revised CCB forecast, real GDP growth for 2018 is expected to be around 4%, with a slight deceleration expected in 2019.
The growth of the GDP may not reflect the true extent of the drop in private debt said Andreas Assiotis, head of the Economic Research Department of Hellenic Bank.
“To have a clear picture one must also look at the actual level of the private debt, as an increase in GDP alone may lead to a drop in private ratio,” Assiotis explained.
The growth in GDP is however, encouraging for another reason.
“The growth in GDP is a reflection of the dynamic which is building up in the society. Households are now in a better position to manage their obligations, thus further lowering their debt”.
He said that even strategic defaulters of the past have now come in for a loan restructuring as they are in a better position to pay off their loans.
“Of course, this also has to do with the pressure exerted by banks with the repossession tool, provided by the recent laws passed by parliament”.
Assiotis said that GDP growth has also led to a rise in demand and house prices, which has in turn put more pressure on households to start paying off their loans.
“The drop in household and business debt helps the overall economy as private debt is one of the factors taken into consideration by the international rating agencies, whose rating in turn affects the country’s economic development,” said Assiotis.
