The recent statement by the Minister of Finance, Makis Keravnos, that for the government the most important priority is reducing non-performing loans in the real economy, as they have decreased in the banking sector as well, was positively received by investors and institutions abroad.
As the Minister explained, achieving this goal will enable the economy to operate without hindrances, and banks will be able to fulfill their role as financiers of development, meeting the demands of the economy whether from households or businesses.
With a background in banking issues, the Minister read the signs of the times correctly and also the occasional hints from international organizations that private debt in Cyprus remains high and any percentage decrease observed in recent years is mainly due to the increase in the denominator, namely the country’s GDP.
During the same period, in another Mediterranean EU country, Italy, which also suffers from a high percentage of non-performing loans (NPLs) and private debt, the policy interventions made regarding the management of the problem have caused turmoil not only among investors who invested in Italy’s secondary loan market but also among regulatory institutions.
The Financial Stability Board (FSB) stated a few days ago that Italy should not proceed with measures that would undermine the country’s success in developing a market for non-performing loans.
Such a development, according to the FSB, could affect the significant progress Italy has made in recent years, improving the legislative and regulatory framework of the sector, collateral processes, as well as judicial and out-of-court solutions.
The recent amendments to legislation in Cyprus are not certain to improve processes, but at least they create conditions of stability so that the market can mature and available solutions can be implemented.
According to recent data published by the Statistical Service, the Cypriot economy continues to have high debt, with the net financial position being negative at €26.6 billion.
Specifically, the assets for the entire economy in financial assets amounted to €686.9 billion at the end of December 2022, of which 52.9% were equity and shares, 19.3% were cash and deposits, and 17% were loans.
The liabilities for the entire economy in financial assets amounted to €713.6 billion at the end of December 2022, of which 51.6% were equity and shares, 21.8% were loans, and 14.6% were cash and deposits.
The assets of households in financial assets amounted to €55.9 billion at the end of December 2022, of which 58.5% were cash, 0.9% were loans, 1.7% were debt securities, and 20.6% were shares. The amount of loans in the sector amounted to €19.8 billion at the end of December 2022, with the corresponding index at 71.4% of Gross Domestic Product (GDP).
The corresponding assets of non-financial corporations amounted to €66.3 billion with a breakdown of 18.5% in cash and deposits, 4.2% in loans, 0.4% in debt securities, 46.5% in shares, and 29.6% in other financial items.