The quality of the loan portfolios of Cypriot banks continues to improve, with the Non-Performing Loans (NPL) ratio dropping to 5.6% at the end of June 2025, down from 6.1% in March.

According to the updated figures published on Wednesday by the Central Bank of Cyprus (CBC), total NPLs declined to €1.46 billion from €1.53 billion three months earlier, while total loans across the banking system reached €25.84 billion.

The CBC highlighted four main factors contributing to the reduction in NPLs during the second quarter of the year:

1. Exchange rate fluctuations

2. Loan repayments, including debt-for-property swap agreements

3. Successful restructuring of loans reclassified as performing

4. Write-offs of loans already covered by provisions

At the same time, the NPL coverage ratio with impairment provisions strengthened to 62% in June, compared with 60.5% at the end of March. This improvement demonstrates the banking sector’s greater capacity to absorb potential future risks.

Restructured loans amounted to €1.23 billion, of which €643 million remain classified as non-performing. Under the European Banking Authority’s definition, such loans require at least 12 months of monitoring before being fully reclassified as performing.

NPL distribution across different sectors showed notable variation:

• Households: 7.4%

• Non-financial corporations: 4.8%

• Other financial corporations: 1.5%

However, small and medium-sized enterprises (SMEs) continue to record higher NPL ratios, standing at 7.1%.