Loan renegotiations spike to record levels
07:38 - 09 August 2023
Loan renegotiation in the Cyprus banking system spiked to record-levels in the first half of 2023, driven mainly by the repeated interest rate hikes by the European Central Bank (ECB) in its effort to tackle soaring inflation.
According to the Central Bank of Cyprus (CBC), renegotiated loans for the period of January to June 2023 spiked to €2.13 billion, marking an annual increase of 264%, compared with €585 million in the respective period of last year.
This was the highest volume of renegotiated loans for a six-month period since the CBC started publishing data for both renegotiated loans and pure new loans (December 2014).
In a bid to control rampant inflations in the Eurozone, mainly fuelled by Russia’s invasion of Ukraine, the ECB has entered since July 2022 into a restrictive monetary policy, hiking its interest rates nine times resulting in a cumulative increase of 400 basis points, with ECB President Chistine Lagarde stating the ECB will either hike interest rates or pause in rate hikes cycle in the coming monetary policy meeting in September.
As the CBC data suggest, facing soaring loan interest rates and rising loan repayments, borrowers in Cyprus, mainly large corporations, rush to the banks to renegotiate loans in a bid to either “lock” interest rates or reschedule their loans, in pre-emptive move to avert problems in debt-servicing. Loan renegotiations are also associated with rising costs due to inflation.
Loan rescheduling concern mainly loans with no arrears that do not show credit deterioration and as such are not considered as debt restructuring classified as non-performing loans, on the basis of the European Banking Authority (EBA).
According to the CBC data, the overwhelming majority of renegotiated loans were corporate loans over €1 million, which in the first half of 2023 amounted to €1.59 billion and represented 74% of the total renegotiated loans. Compared with the first half of last year renegotiated loans over €1 million rose by 240%.
Renegotiated housing loans also marked a steep increase of 455% year on year and amounted to €322 million in the first half of 2023 compared with just €58 million in the respective period of last year, the CBC data showed.
The volume of renegotiated corporate loans up to €1 million in the first half of 2023 reached €159 million, compared with €40 million in the same period last year, marking almost a 300% annual increase.
Loan renegotiation in other loans category and consumer credit also rose significantly reaching €40 million and €24 million respectively from just €11 million and €10 million in the same period of last year.
As the ECB began its interest hike cycle in July 2022, movement in loan renegotiations was accelerated in the second half of 2022 with renegotiations amounting to €800 million compared with €585 in the first half.
Renegotiations heading to a new historic record
The volume of renegotiated loans in the first half has already surpassed total renegotiated loans throughout 2022 (€1.3 billion) and were very close to 2021 where a record of €2.32 billion’s worth of loans was renegotiated. In 2021 renegotiations rose significantly as a very broad loan repayment moratorium in place since the outbreak of the Covid-19 pandemic ended in December 2020.