The private debt in Cyprus continues its downward trend, but its reduction, besides being slow, appears more nominal than real.
This is because the decrease in its proportion to Gross Domestic Product (GDP) is not a result of a reduction in its volume but is mainly due to the increase in the country’s GDP.
According to the Central Bank of Cyprus (CBC), the debt of the domestic non-financial private sector (i.e., households and businesses) has significantly decreased from 352% of GDP at its peak in the first quarter of 2015 to 210% in the second quarter of 2023 (excluding special purpose entities, private debt decreases to 157% of GDP), mainly due to the increase in nominal GDP and loan write-offs. Loan write-offs, primarily part of the remaining loans, were a practice applied more in the early years after the financial crisis and less later on.
Today, the solution of writing off part of the loan continues to be implemented as part of debt restructuring efforts.
The CBC predicts that the index is expected to continue to decrease due to the fact that GDP will continue to increase, as lending criteria become stricter, and due to restrained credit flows, namely the provision of new loans.
Essentially, the CBC comments that private debt in Cyprus is decreasing mainly due to prevailing conditions and not due to improvement in the substance of the problem, which is the reduction of the existing and primarily old Non-Performing Exposures (NPEs).
As the CBC succinctly states, “a significant reduction is expected with the restructuring of the debt held by the Credit Acquiring Companies,” which exceeds €21 billion, and most of which has remained non-performing for many years.
It is recalled that for many months now, the auction process has been frozen due to political interventions, resulting in creating fertile ground for strategic defaulters to continue to default on their loan obligations.
