The picture of non-performing loans (NPLs) in Cyprus has changed significantly in recent years, but the decline of bad loans on bank balance sheets does not mean the problem has been fully resolved. Instead, much of it has moved outside the banking system and into the hands of Credit Acquiring Companies (CACs), where the volume of non-performing loans remains exceptionally high.
The banking sector
The picture within the banking system has improved considerably.
According to the latest aggregated figures published by the Central Bank of Cyprus, with a reference date of 31 May 2026, total non-performing exposures declined to €830 million, compared with €839 million at the end of 2025 and €1.541 billion in December 2024.
The improvement is even more pronounced when compared with December 2021, when NPLs stood at €2.964 billion.
The trend is also reflected in the NPL ratio. At the end of May 2026, non-performing loans accounted for 1.6% of total lending, compared with 3.1% at the end of 2024, 3.7% at the end of 2023 and 5.5% at the end of 2021.
These levels are far removed from the condition of the banking system only a few years ago.
The stock of loans overdue by more than 90 days has also fallen. In May 2026 it stood at €630 million, down from €647 million in December 2025 and €1.193 billion in December 2024.
Restructured loans amounted to €754 million, of which €322 million continued to be classified as non-performing.
The figures suggest that banks have largely removed the burden of legacy NPLs from their balance sheets.
Accumulated provisions for non-performing loans amounted to €523 million, while the NPL coverage ratio reached 63%, up from 59.9% at the end of 2024 and 43.1% at the end of 2021.
Credit Acquiring Companies
However, the significant improvement recorded by banks must be viewed alongside the picture within the Credit Acquiring Companies (CACs), which now hold the bulk of Cyprus's legacy stock of bad loans.
According to Central Bank figures for the first quarter of 2026, CACs were managing loans with a total contractual balance of €19.607 billion at the end of March, compared with €19.351 billion at the end of 2025.
Of that amount:
- €18.527 billion were non-performing.
- €1.080 billion were performing.
In other words, 94.5% of all loans managed by CACs were non-performing.
The composition of the portfolios paints an even clearer picture.
Of the €9.667 billion in loans related to households, €9.005 billion were non-performing.
Among non-financial corporations, €8.833 billion of a total €9.236 billion were classified as non-performing.
For other financial companies, non-performing loans stood at €689 million out of a total portfolio of €704 million.
These figures highlight the central contradiction of the current situation.
On the one hand, the banking sector now reports an NPL ratio of just 1.6% and a total stock of €830 million, a fraction of previous levels.
On the other hand, a portfolio worth €18.5 billion in non-performing loans remains under the management of Credit Acquiring Companies.
The transfer of loans from banks to CACs has therefore largely addressed the issue as a banking-sector problem, but it has not removed it as a debt problem.
Private debt remains
A loan that has disappeared from a bank's balance sheet still exists as an obligation owed by the borrower.
It still requires restructuring, settlement, repayment or another permanent resolution.
This reality is clearly reflected in both the scale and duration of the CAC portfolios.
The contractual balance of €18.527 billion represents debt owed under the original loan agreements, regardless of how much may ultimately be recovered.
The number of affected borrowers also remains substantial.
At the end of March 2026, CACs had a total of 64,381 borrowers, including:
- 55,044 households
- 9,261 non-financial businesses
Property holdings
The property portfolios held by CACs are also noteworthy.
At the end of March 2026, they owned 8,014 properties with a total market value of approximately €968 million.
At the end of 2025, they held 8,063 properties valued at €952 million.
The challenge ahead
The dramatic reduction in NPLs within the banking sector is undoubtedly positive for financial stability.
Banks now have lower exposure to troubled loans, stronger provision coverage and greater scope to focus on financing economic activity.
However, the continued existence of €18.5 billion in non-performing loans within CAC portfolios demonstrates that the underlying debt problem remains.
It also suggests that the framework put in place for managing NPLs has not yet delivered permanent solutions for many troubled loans.
Over the past decade, Credit Acquiring Companies have acted as a safety valve for both the banking system and the wider economy. The transfer of problem portfolios away from bank balance sheets helped remove a major systemic risk from the foundations of the financial system.
What remains missing is a framework that creates genuine incentives for both sides of the relationship.
For creditors, the incentive should be to favour sustainable restructurings over lengthy recovery procedures.
For borrowers, there should be meaningful reasons to cooperate, accept restructuring arrangements and return to regular debt-servicing status.
A key prerequisite for this is stability.
Frequent changes to the rules create uncertainty and reduce the ability of both sides to plan long-term solutions. Restructuring a troubled loan requires time, predictability and clear rules.
The conclusion drawn from the Central Bank's data is not a new one.
What is needed is for the institutional framework to be allowed to function consistently.
Only then can the interests of borrowers be effectively served.
