Corporate NPLs down by €1.8bn in a year as construction, tourism pick up

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By Stelios Orphanides

The consolidated economic growth of recent quarters has helped reduce the stock of non-performing loans in the banking system mainly via a reduction in delinquent corporate credit, central bank data show.

Corporate non-performing loans fell in June from by €1.8bn to €10.1bn, down from 58.3 per cent of total loans extended to non-financial corporations to 52.5 per cent, in a year the latest Central Bank of Cyprus data show. The lion share of this reduction is attributable to three of the most problematic sectors. Delinquent loans extended to builders dropped by €960m in a year last June and real estate and hospitality companies reduced their respective non-performing loans by €504m and €293.8m.

Still, construction, one of the most badly hurt sectors following the real estate bubble burst of 2008, retained a high ratio of bad loans which stood at the end of the second quarter at 64.7 per cent, down 7.8 percentage points in a year – but still the highest among all sectors- the data show. On the antipode, the hotels and restaurants sector, which benefits for a third consecutive year from a bonanza in visitor numbers and spending, managed to reduce their non-performing loans ratio to 37.8 per cent, after a 15.6 percentage point plunge in a year. The real estate sector’s non-performing loans ratio dropped to 43.9 per cent, down 10.8 percentage points.

The Cypriot economy, which this year is expected to expand 3.6 per cent, grew last year 3 per cent and in 2015 2 per cent, emerging from a prolonged recession, according to the latest Cystat data. Last year, the hospitality sector saw its output expand nearly 11 per cent in real terms. Construction output rose marginally less while the real estate sector’s performance increased 1 per cent.

Faith in the prospects of the hospitality sector in the medium term allowed banks to extend additional €92.6m credit to hotel and restaurants, the central bank data show. As a result, total credit extended to hospitality companies stood at €2.2bn in June.

On the other hand, total facilities extended to builders dropped by €763.5 to €5.2bn while real estate managers repaid €136.3m in loans reducing their total obligations to banks to below €4bn, the central bank data showed.

Still, the pace of corporate non-performing loans reduction remains uneven, as a number of other sectors saw the volume of problematic loans increase in June compared to a year before, with the most noteworthy being the transport and storage sector, the data show. The sector’s non-performing loans rose by €108.6m to €351.4m or to a ratio of 50.2 per cent. Non-performing loans extended to mining and quarrying, education, wholesale and retail and information and communication companies also increased in that period, to a lesser degree though.

The reduction of household non-performing loans is also slow, and the ratio dropped in June to 55.8 per cent from 56.3 per cent a year before, the central bank said.

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About Author

Stelios Orphanides is a journalist at CyprusBusinessMail.com. To contact Stelios Orphanides: [email protected]

  • Bob Ellis

    What about all the ‘hidden’ NPLs derived from developers under the administration of banks, that figure seems well hidden. How many billion is that ?

    • SuzieQ

      You’ve asked a very tricky question!

    • Nigel Howarth

      The Bank of Cyprus REMU currently lists 879 properties. The most expensive is the Shopping Mall in Strovolos at €34 million and the cheapest a field in Moniatis at €6,000.

      • Bob Ellis

        We have some friends nearby whose developer went into administration of BoC three years ago owing millions. The developer left a few part biulds and loads of developed land with no Title deeds (ie entraped buyers). Out of curiosity I called BoC to anquire about one of the part builds, the guy managing the case was very aloof. When I asked more detailed questioned he said it was a complicated case and put the phone down. None of the the property is being advertised as it admission of how big the problem is as well as the ‘assets’ covering a fraction of the liabilities. I am poistive there are hundreds of cases like this across the island, hidden from view and not being reported. Alternatively the values the bank give the assets are significantly more than the true value, to make the situation look better than reality. Just looking at the bank property sites, most listd are massively over value and will not sell for years. My only question is, which bank fails next ?

        • Nigel Howarth

          The bigger they come Bob, the harder they fall.

  • GSP

    Surely the construction sector is a very bad investment at the moment. With so many properties on the island unfinished and abandoned, or finished and becoming derelict due to no buyers or renters, we really don’t appear to need more houses or apartment blocks.
    What is the point of extending loans to construction companies for more building work?
    Unless the developer is a relative, of course.
    Or one of the ‘elite’ families.