In 2023, Cyprus set measures in motion to address the long-standing issue of non-performing loans (NPLs), subsequently concluding the year with a robust framework for NPL management. Despite the considerable reduction of NPLs over the past decade, smaller banks and Credit Recovery Companies (CRCs) continue managing sizable NPL portfolios, highlighting the need for further action.
Recognizing the risk posed by the over-indebtedness of the private sector to the national economy, the legislative intervention proffered additional restructuring tools to borrowers. The reform also centered on ensuring a fair system that serves the interests of all stakeholders involved, through elements like the “Rent Against Installment” scheme.
Furthermore, 2023 concluded with the essential closure of the divestment front, a development that the Republic’s President Nikos Christodoulidis previously suggested would have risked burdening the economy going into 2024, had it remained open. Future legislative initiatives on divestments are now seemingly unlikely, with the focus instead on the effective implementation of the changes.
Reflecting on these important milestones, the European Commission’s report on the 15th post-programme monitoring mission to Cyprus highlighted the key challenges facing the Cypriot economy while recognizing improvements to the asset quality. The report stressed the necessity of an effective enforcement framework for the management of non-performing loans, critical for preserving legal certainty and maintaining payment discipline.
The Central Bank of Cyprus mirrored this, emphasizing in its Financial Stability Report the importance of a stable legal framework for divestments. As Cyprus navigates the impact of high inflation and borrowing rates on the private, non-financial sector’s ability to repay its obligations, it is vital to maintain an effective NPL management and restructuring framework.
