Credit-rating agency Standard & Poor’s highlights the seriousness of Cyprus’ private-sector debt problem in a recent report: around 44% of all private-sector debt in Cyprus remains non-performing (NPLs).

As Brief reports, this figure is far above the eurozone average and shows that almost half of household and business loans are still frozen or under special management. The statistic underscores the depth of the challenge facing the wider economy, even though banks have stabilised their own balance sheets.

Market analysts note that the vast majority of this debt—moved off bank balance sheets—now lies in the hands of Credit Acquiring Companies (CACs). While banks have reduced their direct exposure, the systemic problem has shifted to a parallel financial sector.

CACs were introduced to help banks quickly reduce their NPL ratios. However, the effectiveness and pace of debt reduction by these companies remain crucial for releasing capital and restoring the creditworthiness of a significant portion of the private sector.

The large concentration of unresolved debt continues to act as a brake on full economic recovery. The 44% share of non-performing private debt limits households’ and businesses’ access to new financing, constrains investment activity and affects long-term stability.

Despite the high stock of legacy debt, S&P identifies one positive indicator: after years of contraction, the volume of loans issued by banks to households (housing and consumer loans) and to businesses is expected to grow by 2.5% in 2025. This suggests that banks are once again in a position to expand lending.

However, the sustainability of this expansion depends on the efficient management of the debt held by CACs. Resolving “frozen” loans would allow more borrowers to settle legacy obligations and participate in the new credit cycle.

• Cyprus (outside bank balance sheets): 44% of private-sector debt held mainly by CACs.

• Eurozone average (on bank balance sheets): around 2.3% of total lending.

This stark contrast shows that although Cypriot banks have reduced their own NPL ratios close to the European average (5.5%—or 2.9% under EBA methodology), the broader issue of private-sector over-indebtedness has not been resolved, but rather transferred.

The high concentration of unresolved debt, mostly held by CACs, sends a mixed message to international investors: the banking system appears stable, well-capitalised and profitable, but a large segment of the economy—nearly half of private debt—remains tied up in legacy loans, affecting long-term growth prospects.