The reduction of Cyprus’ inordinately high levels of non-performing loans in the long term depends heavily on the positive growth of the island’s economy, Central Bank of Cyprus Governor Chrystalla Georghadji has said.
Addressing the House Finance Committee on Monday, Georghadji detailed that – provided a growth rate of some 3% is secured per annum – three to five years are required for the reduction of today’s NPLs to fall from 47% of the country’s total loan portfolio to 10%.
These results follow the Governor’s request to the International Monetary Fund (IMF) that it examine the time frame within which the island may reduce its NPLs to manageable rates.
This cannot be achieved, however, without growth, Georghadji expressed. She noted her expectation that GDP will record an increase of 1.5% or greater in 2015 and at least 2% in 2016.
Pointing out that the upward trend of non-performing loans has been reversed, she provided data according to which loan restructurings increased by 58% during the third quarter of 2015. Loans that have been restructured by September 2015 amounted to €14 billion, of which €10.5 billion are still considered as NPLs according to the Directive of the European Banking Authority, which indicates that restructured loans are calculated as NPLs for a year.
Regarding the allocation of new loans, the Governor explained that in 2015, business loans increased by 3.1%, while the granting of housing loans also increased significantly.
Despite the fact that lending rates were reduced by 1%, something which aimed to facilitate an increased demand for new loans, Georghadji revealed that demand remains weak. At the same time she stressed that high lending rates are a "Gordian knot", and added that "we must not forget that we are a country that has not regained the confidence, thus many of the loans are risky." The aim, said Georghadji, is to further improve the speed and sustainability of loan restructures.
Georghadji said that the CBC will soon post software on its website through which borrowers may monitor their loans and communicate with the bank to request restructuring solutions.
Acknowledging that CBC needs reorganization, restructuring and corporate governance, the Governor said that between December 2 and 10 an IMF team will come to Cyprus to give the bank technical assistance and recommendations on corporate governance.