Cyprus is seeing encouraging progress in resolving its non-performing loans (NPLs), a longstanding challenge for its financial sector. A report by DBRS Morningstar highlights significant recovery in key NPL projects and credits the island’s banking reforms for improving economic stability and credit ratings.
The report sheds light on the performance of three major NPL projects: Hestia Financing, Titan Financing, and Capella Financing. While these projects initially faced difficulties, they are now showing notable recovery. Capella Financing, in particular, achieved a 5.8% increase in its annual collection rate. Meanwhile, Titan and Hestia recorded more moderate but still positive improvements of 1.7% and 3.8%, respectively.
A stronger banking system has been instrumental in these gains. Over recent years, Cyprus’ banks have significantly reduced their bad loans, particularly in the mortgage sector. The nation’s NPL ratio has fallen by 254 basis points—one of the sharpest declines in Europe—thanks to improved collateral that provides banks with better protection in case of defaults. These developments signal substantial progress in Cyprus’ battle against bad debt, which has long burdened its economy.
The real estate sector has also supported this positive trajectory. Despite the challenges posed by the European Central Bank’s tighter monetary policies, Cyprus has benefited from stable demand for housing, partly driven by an influx of foreign workers. Additionally, lower interest rates have helped maintain market stability, allowing NPL projects to perform better than anticipated.
This recovery has not gone unnoticed by credit rating agencies. Both Hestia and Capella projects have seen upgrades in their ratings from negative to positive, reflecting the improving outlook. If the current trends persist, Cyprus could experience further credit upgrades, contributing to greater financial resilience.
However, challenges remain. The report cautions that some projects, like Titan Financing, still face hurdles due to lower-quality collateral. Underperforming collections could strain such projects, highlighting the need for continued diligence in managing financial risks.
Overall, the outlook for Cyprus is optimistic. The nation’s ongoing efforts to tackle bad loans are enhancing financial stability, fostering economic growth, and attracting investor confidence. As Cyprus continues to reduce its NPL burden, it positions itself for a brighter, more stable economic future.
Source: Knews.kathimerini.com.cy