The banking sector in Cyprus is experiencing a notable improvement in asset quality, with the non-performing loans ratio continuing to fall. According to the Central Bank of Cyprus (CBC), as of the end of October 2025, this ratio dropped to 4.2 per cent, down from 4.5 per cent in September 2025, marking a significant step in balance sheet repair.
Non-performing loans: Steady Progress in Credit Quality
The decline in non-performing loans is indicative of a month-on-month improvement in credit quality, even when focusing on a narrower definition that excludes loans and advances to central banks and credit institutions. The CBC’s report highlights the effectiveness of ongoing measures to strengthen financial stability within the sector.
Improved Ratios Under European Standards
When applying the European Banking Authority Risk Dashboard methodology, which considers loans to central banks and credit institutions, the non-performing loans ratio further decreased to 2.1 per cent at the end of October 2025, compared to 2.3 per cent the previous month. This downward trend underscores the banking sector’s consistent efforts to enhance asset quality.
Enhanced Provisions Against Credit Losses
Additionally, the CBC reported a strengthening in provisioning levels, with the coverage ratio of non-performing loans rising to 70.7 per cent at the end of October 2025. This increase from 68.5 per cent a month earlier indicates that banks are building stronger buffers against potential credit losses, reinforcing their resilience.
Restructured Loans and Ongoing Challenges
As of the end of October 2025, total restructured loans in Cyprus amounted to €1.1 billion, with €0.5 billion of these remaining classified as non-performing. This highlights that while restructuring efforts are ongoing, a significant portion of these loans has yet to return to normal status. The challenges in this area reflect the complexities of managing credit risk in the current economic climate.
Aligning with Euro Area Trends
The improvements in the Cypriot banking sector mirror broader trends in asset quality across the euro area. Data from the European Central Bank (ECB) indicates that the euro area’s non-performing loans ratio, excluding cash balances at central banks, stood at 2.22 per cent in the second quarter of 2025, showing a slight decline compared to the previous quarter. This trend is driven by a combination of reduced bad loan stocks and increased loan volumes.
Sector-Level Insights
At the sector level, household lending saw a decrease in the non-performing loans ratio to 2.16 per cent, down from 2.21 per cent in the preceding quarter. In contrast, the ratio for loans to non-financial corporations was reported at 3.50 per cent, a slight increase from 3.48 per cent, yet still lower than the previous year’s figure of 3.56 per cent. This suggests a longer-term improvement despite minor fluctuations.
Commercial Property and SMEs
Loans collateralised by commercial immovable property recorded a non-performing loans ratio of 4.57 per cent, showing relative stability when compared to 4.50 per cent in the previous quarter. However, small and medium-sized enterprises (SMEs) faced a rise in their non-performing loans ratio to 4.85 per cent, slightly up from 4.78 per cent. This indicates ongoing pressure in this segment of the corporate sector.
Overall, these figures paint a promising picture of the Cypriot banking system, demonstrating a commitment to maintaining asset quality improvements. The combination of declining non-performing loan ratios and stronger provisioning reflects a proactive approach to managing financial health amidst a challenging economic landscape.
