Bank loan restructuring up 400%

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Loan restructurings recorded a 400% increase in the first six months of the year, reaching €1.4 bln, Cyprus Central Bank Governor Constantinos Herodotou told MPs.

Herodotou, addressing Monday’s House Finance Committee on the 2022 budget, said he would be against increasing interest rates as current high inflation is temporary.

Moreover, an increase in rates would harm businesses and households.

He said during the first six months of 2020, restructurings reached €270 mln, while in the first six months of 2021, following a moratorium on loan repayments, it reached €1.4 bln, following the Central Bank’s intervention.

“The fact that all these loans were averted from becoming non-performing and all these businesses and households were able to keep their loans performing is a significant success, over and above the moratorium`s success,” Herodotou said.

He explained that these restructured loans are not just loans that used the moratorium.

Referring to an upward inflation trend, he cited European Central Bank (ECB) positions that inflation is a temporary hump that will peak in 2022.

It is not due to an increase in demand but to supply-side bottlenecks which have not yet recovered from the COVID-19 pandemic.

“If we were to increase interest rates due to low demand at a time when factories are boosting their production, we would harm households and businesses with further increases.”

Referring to the NPLs as a percentage of total loans, Herodotou said that from 27.9% in pre-pandemic December 2019, it dropped to 17.4% in June 2021.

He stressed that pressure continues to be applied by the single supervisory mechanism to reduce NPLs further since the average NPL indicator in the EU has dropped to about 2%.

Referring to credit acquiring companies to which NPLs worth €16.3 bln have been transferred, the Central Bank Governor said these loans continue to be part of the economy, but more time has been granted to find solutions for borrowers.

New loans granted by banks have returned to satisfactory levels, he said.

In the first nine months of 2019, they stood at €2.5 bln; in 2020, they were €1.6 bln due to the lockdowns and uncertainty, while in the first nine months of this year, they were €2.1 bln.

Deposits in banks this September reached €50.3 bln, of which €41.2 bln were deposits of Cypriot residents. (source CNA)