Cyprus banks strengthen asset quality as non-performing loans fall further

The Central Bank of Cyprus (CBC) on Friday reported that the Cypriot banking sector’s non-performing loan ratio continued to fall, reflecting ongoing balance sheet repair and improved asset quality.

As of the end of October 2025, the non-performing loans ratio excluding loans and advances to central banks and credit institutions declined to 4.2 per cent, compared with 4.5 per cent at the end of September 2025.

This decline pointed to a month-on-month improvement in credit quality, even under the narrower definition that excludes interbank and central bank exposures.

Under the European Banking Authority Risk Dashboard methodology, which includes loans and advances to central banks and credit institutions, the non-performing loans ratio fell to 2.1 per cent at the end of October 2025.

This compared with 2.3 per cent at the end of September 2025, confirming a consistent downward trend across both measurement approaches.

Provisioning levels also strengthened, with the coverage ratio of non-performing loans rising to 70.7 per cent at the end of October 2025.

This marked an increase from 68.5 per cent a month earlier, indicating enhanced buffers against potential credit losses.

The CBC also reported that total restructured loans stood at €1.1 billion at the end of October 2025.

Of this amount, loans worth €0.5 billion remained classified as non-performing, underlining that a significant portion of restructured exposures has yet to fully normalise.

The Cyprus figures align with broader improvements in asset quality across the euro area, as reflected in European Central Bank (ECB) data.

According to ECB statistics, the euro area non-performing loans ratio excluding cash balances at central banks stood at 2.22 per cent in the second quarter of 2025.

This represented a decline of 2 basis points compared with the previous quarter, driven by both falling bad loan stocks and expanding loan volumes.

The ECB data showed that the stock of non-performing loans fell by €2.36 billion, equivalent to a decrease of 0.66 per cent during the quarter.

At the same time, the total amount of loans and advances increased by €57.64 billion, representing growth of 0.36 per cent.

At sector level, the non-performing loans ratio for household lending declined to 2.16 per cent, down from 2.21 per cent in the previous quarter.

This also represented an improvement compared with 2.24 per cent recorded a year earlier, signalling gradual stabilisation in household credit risk.

For loans to non-financial corporations, the non-performing loans ratio stood at 3.50 per cent, compared with 3.48 per cent in the previous quarter.

Despite the slight quarterly uptick, the ratio was lower than the 3.56 per cent recorded one year earlier, pointing to longer-term improvement.

Within the corporate portfolio, loans collateralised by commercial immovable property recorded a non-performing loans ratio of 4.57 per cent.

This compared with 4.50 per cent in the previous quarter and 4.61 per cent a year earlier, indicating relative stability in this segment.

For small and medium-sized enterprises, the non-performing loans ratio rose to 4.85 per cent, up from 4.78 per cent in the previous quarter.

The SME ratio was also slightly higher than the 4.80 per cent recorded a year earlier, highlighting ongoing pressure in this part of the corporate sector.

Taken together, the data showed that Cyprus banks are maintaining asset quality improvements, broadly in line with euro area trends.

The figures also suggested that stronger provisioning and declining non-performing loan ratios are reinforcing the resilience of the Cyprus banking system.