Central Bank Governor Constantinos Herodotou has urged the island’s bank leaders to manage customer loans on the verge of turning red due to the repeatedly rising interest rates promptly and effectively.
And that sustainable loan restructurings will benefit both the lender and the client, Philenews reported on Wednesday.
“It is better to make timely restructurings to solvent customers, but make them viable, rather than letting loans go from green to red,” Herodotou was quoted telling heads of banks at a meeting on Tuesday.
“Because this will put a strain on the island’s bank balance sheets and the economy at large,” he also said.
Thousands of borrowers have been stung by interest rate hikes as they see their monthly mortgage instalment increase by hundreds of euros.
Since July, the ECB had raised interest rates by three percentage points plus an additional 50 basis point (half a percentage point) increase last Thursday.
Just before the spread of the Covid-19 pandemic in January 2020, the non-performing loan (NPL) ratio in Cyprus was as high as 28.0%.
It declined last year to 10.5% in October from 11.7% in January, and NPLs have fallen further, as Cyprus’s two systemic banks completed one and are close to completing a further large sale of NPLs.
The imminent danger of performing loans now turning red is there, according to Herodotou.