Debt restructuring slowdown

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Debt restructuring declined to €545 mln in the first six months, with loan renegotiations slowing following a record year due to the pandemic as non-performing loans declined to their lowest point since the 2013 financial crisis.

According to data published by the Central Bank of Cyprus, debt restructuring from January – June dropped by 59% compared with last year, when loan renegotiations amounted to €1.42 bln.

Last year marked a record in debt restructuring, with Cypriot banks upping the pace following the crisis of the Covid-19 pandemic, especially after the ending of a payment holiday, the largest in the EU.

Restructurings throughout 2021 amounted to €2.32 bln from €0.75 bln in 2020 and €0.57 bln in 2019, before the Covid crisis.

Restructurings in the first six months remain elevated by 18.4% from 2020.

Corporate loans

According to CBC data, large corporate loans over €1 mln had the largest share of restructurings in the first half of this year, with €467 mln or 85% of total restructurings.

Housing loans restructured was €58 mln, followed by restructurings of corporate loans up to €1 mln with €39 mln, other loans with €10 mln and consumer credit with €9.8 mln.

Large corporate loan restructurings historically hold the largest share, while in 2021, renegotiation of large corporate debt amounting to €1.78 bln, almost 77% of total restructurings.

NPL sales

Debt restructuring in the first half of 2022 was also affected by non-performing loan sales concluded by Cyprus’ two largest banks.

Bank of Cyprus, in November 2021, sold a portfolio of NPLs with a contractual value of €0.99 bln (Helix 3), while Hellenic Bank concluded its first major NPL sale in April 2022 disposing of NPLs with a contractual value of €1.32 bln.

These loans were “carved out” from the banking system to credit acquiring companies and debt servicing companies, with banks de-risking their balance sheets and consequently reducing the pressure on their capital.

The ratio of NPLs to total loans in the banking system at the end of March stood at 11.4% (as defined by the EBA directive), with total NPLs amounting to €2.92 bln.

However, in its financial stability report, the CBC warned although no particular increase in NPLs was recorded due to the Covid pandemic, the new geopolitical crisis from the war in Ukraine “brings the risk of NPL increase back to the fore.”