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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