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Central Bank of Cyprus says data show signs of stabilization of financial sector

Xinhua, July 7, 2016 Adjust font size:

The Central Bank of bailed-out Cyprus said on Thursday that its latest data on bank loans show that important aspects of financial sector activities are stabilizing, a few months after the eastern Mediterranean island exited a three-year adjustment program.

Cyprus was pulled back from the brink of bankruptcy in March, 2013 with a 10-billion-euro(11.08 billion U.S. dollars) financial assistance package by the Eurogroup and the International Monetary Fund, under which its banking system was resolved in the world's first ever bail-in.

Bank of Cyprus, effectively the only major bank after it was forced to absorb its crumpling main competitor, seized 47.5 percent of deposits over 100,000 euros to recapitalize.

This resulted in a sharp increase of non-performing loans to almost 50 percent of total loans, which still shackle down financial instructions.

But the Central Bank said in its May, 2016 report that non-performing loans showed signs of levelling off in 2015 with a decrease in their level in the fourth quarter of the year, "indicating a possible improvement in the debt servicing capacity of Non-Financial Corporations (NFC)."

It added that restructuring of non-performing loans has followed an upward trend and reached 33.2 percent at the end of 2015 and "are expected to fall owing to an increase of restructuring."

It also said that a marked improvement will be reflected in data soon as restructured loans are listed as non-performing for many months, under instructions by the European Banking Authority.

The latest data, the report said, show that non-financial corporations are still heavily indebted, their debt as a percentage of GDP increasing to 230.4 percent, slightly up from its mid-2015 level in a sign of stabilization.

The report also said that the total domestic household debt is at a very high level, standing at 127.7 percent of GDP at the end of the third quarter of 2015, but there are signs of stabilizing.

It said loan servicing of both households and NFC's capacity is still weak, especially in the case of loans to the broader real estate sector to which banks are highly exposed.

"As far as property is concerned, prices continued their downward trend, however the pace of decline is lessening, possibly showing that prices are bottoming out," the report said.

The report added that there are emerging signs of renewed domestic and foreign demand, assisted by the reduction in lending rates. Endit