Cypriot banks still need to address non-performing loans

International lenders concluded a fifth review of Cyprus’s economy today, saying the island was making “relatively good progress” after a bailout last year but that key challenges lay ahead.

Representatives of the lenders, comprising the European Commission, the International Monetary Fund and the European Central Bank, said the island's fiscal performance was on track and that the banking sector had started to stabilise. But it said non-performing loans exceeding 50 per cent of banks' domestic bank loan books needed to be addressed.

Lenders and representatives of the Cyprus government agreed on key provisions of a more effective foreclosures law to replace the time-consuming current process, under which it could take a bank up to 20 years to reclaim what it has lent.

“The key challenge is getting a handle on the non-performing loan issue,” a senior EU Commission source said. “Right now, NPLs are exceeding 50 per cent of domestic banking loan books. It’s crystal clear this is an issue which needs to be addressed.”

The law will require ratification by parliament and will exclude primary residences from foreclosure until a new and more effective insolvency law takes effect from January 1st. Commission officials said that was a “prior action”, which means it must be approved by parliament before new aid is disbursed.

Reuters