Moody’s says Cyprus banks experience decline of NPEs

Moody’s rating agency, stated that there was a decline by €5.6 billion in non-performing exposures (NPEs) stemming from the resolution of the co-operative bank (CCB) and the transfer of its NPEs to an asset management company. The rating agency stated that the decline is is a credit positive for the Cypriot banking system because it reduces asset quality risks and supports depositor confidence.

After the resolution, the CCB’s assets and deposits were transferred to Hellenic Bank, which has increased overall depositor confidence in the banking system.

Moody’s noted:

“We estimate that the majority of CCB’s NPEs (over 80 per cent) were primarily mortgage loans. Therefore, the NPE ratio in the household sector (accounting for 40 per cent of system gross loans as of September 2018) improved the most, declining to 38 per cent as of September 2018, from 53 per cent as of August.”

Overall, NPEs of all Cypriot banks decreased by €10bn during the first nine months of 2018.

Additionally, approximately €3.2bn of NPE sales and transfers by other banks such as Bank of Cyprus, Alpha Bank, and Hellenic, primarily related to small and midsize businesses, contributed to the reduction.

Moreover, loan repayment is expected to rise, supported by recent legislative and regulatory measures aimed at improving the foreclosure and insolvency framework, as well as the government-sponsored plan, Estia, targeting socially vulnerable borrowers that have defaulted on their mortgages.