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Info: Dr. George Mountis is Managing Partner of Delfi Partners.

The Central Bank of Cyprus (CBC) started releasing data on the non-performing loans (NPLs) of commercial and cooperative banks in June 2013. NPLs as a percentage of total credit facilities have continued to rise ever since. However, although they rose from 30.6% in June 2013 to almost 51% in November 2014 (latest available data), which corresponds to over €7 billion of additional non-performing debt, NPLs restructuring has been very slow; the percentage of restructured non-performing loans has not exceeded 12% during the aforementioned period (CBC, 2015). 
More to the point, as of late November 2014, only around 11.1% of NPLs – equating to loans worth €3.1 billion – had been restructured. As far as credit facilities to legal entities (mainly corporations) are concerned, the construction industry displays the highest restructuring rate; by the end of November, 25.3% of the sector’s NPLs had been restructured. It should be noted that construction is responsible for the highest percentage of NPLs with 78.7% of the loans granted to corporations active in the industry not being serviced. NPLs to developers and contractors that have been restructured account for over €1.4 billion, representing more than 46% of the total NPLs restructured. High restructuring rates have also been recorded in the transport and health sectors, exceeding 30% in both cases. Restructured NPLs in the real estate and tourism (accommodation & food services) industries stand at 15.6% and 16.1% respectively. 
As for credit facilities to private individuals, of which more than half (51.7%) are classified as non-performing, the average restructuring rate is 8.3% (9.9% for housing and 6.6% for consumer loans). Of some €4.3 billion worth of loans granted for the purchase or construction of owner-occupied immovable property that are not being serviced, only €378 milllion had been restructured by the end of November 2014. 
“Loan restructuring” refers mainly to the extension of repayment periods, and/or a ‘temporary’ decrease the monthly instalment. In some cases, restructuring involves lower interest rates or waiving part of the capital and/or the interest due. Moreover, the complex procedures that need to be followed in order to proceed with loan restructuring are considered by many to be an obstacle to the effort and, for this reason, various stakeholders have already submitted a request to the CBC asking for the simplification of the process. Finally, the approval of a bill for property divestment and an appropriate insolvency framework are also considered as critical for the acceleration of restructuring rates in 2015. 
Banks could secure the collection of significant parts of loans that are currently not being serviced (and, therefore, increase their revenue and liquidity), by managing their NPLs more efficiently. A more effective management approach comprises the restructuring of loans that are classified as non-performing but are still considered viable. On the other hand, there are no obvious benefits to delaying the restructuring process; on the contrary, the danger of a new crisis in the Cypriot banking system caused by the accumulation of huge amounts of NPLs cannot be ignored. NPLs act as an obstacle to the recovery of the economy. 
The ‘new’ Bank of Cyprus (and the other recapitalised local banks) can contribute to growth by granting low interest loans and proposing ‘smart’ NPL restructuring solutions. Cyprus’ level of NPLs is the highest in Europe. For the economy to return to and sustain growth, household and corporate debt needs to be significantly reduced. 
Banks should promptly proceed with writing-off default interest and surcharges on overdue loans, including interest on capital that debtors will never be able to repay, mainly because of previous usurious charges imposed by the financial institutions. A few months ago, six years after its banks went bankrupt, Iceland proceeded with a haircut of household debt by subtracting value of (mainly) housing loans. It is estimated that this initiative will directly benefit around 85% of households and that the write-offs will near €25.000 per debtor. It is important to note that Icelandic households and corporations never reached the levels of lending of their Cypriot counterparts. 
Finally, although deposit interest rates have been significantly de-escalated, existing and new lending rates remain at artificially high levels and have not been proportionally reduced. ‘Fuelling’ businesses with new but notably cheaper money is a necessary move to reboot the economy. The Government should search for a solution for the huge debt amassed by households and businesses and consider (under specific terms and conditions and having calculated its impact on the banks) a ‘private debt relief’ programme.