articles | 22 March 2017

Bad loans drop to 47% during Q4 2016

During the fourth quarter of 2016 there was a decrease of €452 million in total NPFs, with the largest part of the fall exhibited in November and December 2016 by €211 million and €204 million, respectively.

According to data released recently by the Central Bank of Cyprus (CBC), total facilities increased by €768 million during the same period, reaching €50.361 million. This has resulted in a drop in the ratio of NPFs to total facilities from 48.7% to 47%. 

It must be noted that, in the period from 31 December 2014 to 31 December 2016, there has been an overall decline in NPFs of €3.7 billion or 13.4%. The coverage ratio has risen to 41.2% at end-December 2016 compared with 38.8% at the end of September 2016.

At the end of the fourth quarter of 2016, out of the 21,056 accumulated applications for restructuring, agreements with the borrowers had been concluded in 6,325 cases (30%), 12,658 cases (60.1%) had been carried forward to be examined in the next quarter while 2,073 cases (9.9%) had been rejected either by the bank or the borrower.

The downward trend in NPFs can be attributed to increased repayments, restructurings successfully completed by the end of the observance period and reclassified as performing facilities, write-offs as well as settlement of debt through swaps with immovable property that is expected to be sold with the aim of a faster cash collection.

The analysis of additional data collected by the CBC with respect to fixed-term loans shows that there has been an improvement in the factors contributing to the reduction of NPFs, such as collections on restructured facilities and amounts transferred to performing facilities due to successful completion by the end of the observance period.

As mentioned above, the reduction in NPFs is alsodue to the rise in loan write-offs, which take place in the context of restructurings and usually concern amounts that already form part of credit institutions’ loan loss provisions. However, non-contractual or "accounting" set-offs are also made against amounts already provided aimed at a more representative depiction of loan portfolios.

As regards repayments of NPFs through settlements that involve or include acquisition of real estate/shares against debt by the credit institutions, these are mainly implemented in the case of large corporate entities.

It should be noted that credit institutions apply the definition of NPFs adopted by the European Banking Authority. Based on this definition, when an NPF is restructured it is not immediately reclassified as a performing facility but remains under observation within the NPF category for a further period of at least 12 months, even if the customer follows without arrears the new agreed repayment schedule. Facilities with forbearance status at the end of December 2016 amounted to €13,390 million, of which €9,701 million are still classified as NPFs partly due to the definition of NPFs as explained above.

Credit institutions continue their intensive efforts towards restructuring NPFs in cases where viable settlements are possible, the CBC announcement continues. At the same time, the success of some restructurings depends on the prospect of disposing the collateral within the specified time frame, it is added. A net reduction of €200 million is observed at the end of December 2016 compared with 30 September 2016 because, apart from the new and increased restructurings, there have also been repayments and reclassifications out of the restructuring category following successful completion by the end of the observance period.

Source: Famagusta Gazette

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