Cyprus banks lag behind the EU on time needed to recover defaulted loans in residential real estate (RRE) and consumer debt, a European Banking Authority (EBA) report reveals.
According to a report on the benchmarking of national loan enforcement frameworks across the bloc, time to recovery of an RRE defaulted loan is twice the EU average.
Recovering a residential defaulted loan takes 6.4 years on average in Cyprus compared with 3.1 years in the EU, the EBA said.
The net recovery value in cases of defaulted RRE in Cyprus amounts to 28.2% of the loans` notional value at the time of default, compared with 43.9% of the EU average.
“Higher time to recovery results in a lower recovery rate, reflecting poor enforcement/insolvency procedures,” the EBA said.
Recovery for a defaulted loan for commercial real estate (CRE) in Cyprus amounts to 2.1 years on average compared with 4.1 years in the EU average with the net recovery rate amounting to 23.3% compared with 38.4% of the EU average.
Net recovery rate in SME loans in Cyprus amounts to 23.7% of the loans’ notional value compared with 31.5% in the EU.
Cyprus scores better in terms of recovering defaulted corporate loans, as the legal process is more streamlined.
According to the EBA, recovering a corporate loan in default would take 2.2 years on average quicker than the EU’s 3.4 years.
Furthermore, recovering defaulted credit card loans takes 3.3 years in Cyprus compared to 2.3 years in the EU.
Cyprus also has the longest period for resolving consumer defaulted loans which require 7.1 years to be recovered against the EU average of 3.7 years.
However, the recovery values amount to 50% which is much higher than the EU average of 39.2%.
Judicial costs for loan recovery in Cyprus amount to 3.5% of the loan’s value for SMEs, 0.6% for corporate loans, compared with 3.5% and 1.4% of the EU average respectively, the EBA said.
Judicial costs for RRE defaulted loans in Cyprus amount to 2.2% compared with the EU average of 2% while the recovery of CRE loans would cost 1.5% of a loan’s value compared with 1.6% of the EU average, the EBA added.
Recovering credit card loans cost 6.6% compared with 5.4% of the EU average while other consumer credit cost 4.1% of a loans notional value compared with 6.7% of the EU average.
The EBA said national loan enforcement schemes vary significantly according to enforcement schemes offered to creditors, the scope and consistency of rules application and the efficiency of a country’s legal system.