Domestic households and non-financial corporations (NFC) continue to be highly indebted although the latest data indicate that debt levels have started decreasing, says a Central Bank`s of Cyprus report for September, released Friday.
Private non-financial debt stood at 354.2% of GDP as at the end of March 2016, down from 357.6% in the previous quarter. In comparison with the previous year, household and NFC debt ratios declined gradually to 127.3% and 226.9%2 of GDP, respectively, at the end of March 2016.
Bank credit to the domestic non-financial private sector decreased to 243.1% of GDP at end of March 2016 compared with 252.0% a year earlier.
Furthermore, a stabilisation in the financial position of households and NFCs was observed. The net financial asset position (net worth) of households increased to 121.8% of GDP in 2016 Q1. The net financial liabilities of NFCs remain high at 221.9% of GDP at end-March 2016, having decreased marginally since the previous quarter.
In the property market, prices continued their downward trend. However, the pace of decline is slowing down – an indication that prices may bottoming out owing to renewed domestic and foreign demand, encouraged by the reduction in lending rates.
In the banking sector, non-performing loans (NPLs) continue to be the key challenge for banks. However, a clear improvement has been observed due to the increase in the number and value of restructured loans. Cyprus banks have made considerable progress in managing their NPL portfolios, aiming to further increase the pace of restructurings.
Recent improvements in the legal tools governing foreclosures also support the banks` loan restructuring efforts, complemented by a revised personal and corporate insolvency regime. Furthermore, the country’s return to moderate economic growth since the beginning of 2015 has
also helped the banks` restructuring efforts and is conducive to a lower number of new defaults.
It is estimated that GDP growth will reach 2,7% for the whole of 2016. This shows, according to the report, that Cyprus is on a path of recovery following the recession of the previous years.