Cyprus addresses lingering private debt despite banking sector cleanup

Cyprus has successfully reduced its non-performing loans (NPLs) to levels comparable to the European Union average, marking a significant transformation for its banking sector. Xenios Socratous of the Central Bank of Cyprus (CBC) reported that while bank balance sheets have improved, a substantial debt burden remains within the private sector. The problem has shifted from banks to credit-acquiring companies, where the challenges of recovery persist.

Data from the end of 2025 reveals that the contractual balance of bad loans held by credit-acquiring companies reached €19.4 billion, while their book value stands at only €2.8 billion. This €16.6 billion discrepancy highlights the difference between what borrowers owe and the realistic recovery value assigned by creditors. Socratous emphasizes that this underlying debt continues to act as a macroeconomic constraint, potentially hindering investment and consumption.

The crisis stems from pre-2013 rapid credit growth, which burdened households and businesses. While the banking sector has offloaded these NPLs, the central bank analysis suggests that the underlying macroeconomic issue of private indebtedness requires continued attention to ensure long-term economic stability.