The group of international financial institutions known as the Troika has expressed concerns about Cyprus’ sluggish advancement in dealing with its longstanding Non-Performing Loans (NPLs) and the country’s ongoing issue of high debt levels.

The recent visit of the Troika’s technical delegation to Cyprus underlined the pressing economic issues the country faces, mainly caused by a considerable amount of unresolved Non-Performing Loans and the persistence of high public debt.

Although there has been a slow reduction in NPLs over the past few years, a significant backlog remains, continuing to burden the economy. Additionally, private debt is still relatively high, limiting the financial flexibility of households and businesses.

Recent reports indicate that the Troika is seriously worried about Cyprus maintaining one of the highest NPL ratios in the Eurozone. This concern extends beyond the NPLs retained by banks to those held by Vulture Funds. According to the latest figures, these entities possess approximately €19.1 billion in NPLs, with an additional €1.7 billion still on bank balance sheets. The inability to resolve or write off these loans restricts credit access and diminishes liquidity in the economy.

Furthermore, the Troika noted that Cyprus’s private debt remains significantly high compared to European standards. This situation hinders some individuals and businesses from fully engaging in the country’s economic progress. By the conclusion of 2024, roughly 72,000 borrowers had NPLs managed by Debt Servicing Companies, with fewer maintained by banks.

Impact on the Economy of Cyprus

The substantial volume of unresolved NPLs, along with high public debt, impedes economic growth. Ongoing uncertainty regarding the foreclosure process and the slow pace of debt resolution erode investor confidence and postpone new investments. Moreover, the lack of a cohesive plan to further lower public debt risks increasing the state’s borrowing costs, further restricting future growth potential.

A Critical Year Ahead

The year 2025 is anticipated to be a pivotal moment for Cyprus. The Troika has called on Cypriot authorities to implement definitive actions to tackle the NPL issues and reduce private debt. Primary focuses include:

Enhancing the rate of foreclosures and debt restructurings: Promptly resolving legacy NPLs is crucial to stimulate growth.

Judicial reform: Making foreclosure proceedings quicker and less vulnerable to exploitation by strategic defaulters is essential.

Developing targeted policies for private debt reduction: In a country growing at over 3% annually, adopting debt relief and restructuring strategies is vital for broader economic inclusion.

Stimulating economic activity: An economy relieved of legacy debt enables banks to increase new lending, thereby boosting investment and consumption.

In summary, Cyprus is at a transition point where courageous reforms are necessary to overcome the enduring impact of its past financial turmoil, paving the way for sustained economic recovery and growth.