The contractual balance of Cyprus bad loans held by credit-acquiring companies stood at €19.4bn at the end of 2025, while the book value of the same portfolios was just €2.8bn.
The €16.6bn gap lies at the heart of a new analysis by Xenios Socratous, published on the Central Bank of Cyprus’ CBC Blog, examining whether the problem of non-performing loans (NPLs) has been resolved, transferred or transformed.
The two figures are not contradictory. They measure different things: the amount borrowers still owe and the value assigned to those loans on creditors’ books.
The €16.6bn gap
“When examining non-performing loans, there is one distinction that matters more than any other: the contractual balance is not the same as the book value,” the analysis says.
The contractual balance represents the amount owed by the borrower under the loan agreement, including accrued interest. The book value reflects what the loan is worth on the creditor’s books after estimated recoveries, updated assumptions about future cash flows and relevant impairments are taken into account.
As the author explains, “a high contractual balance does not mean that the creditor expects to recover the entire amount. Likewise, a significantly lower book value does not mean that the borrower’s obligation has disappeared or been written off.”
In 2022, loans held by credit-acquiring companies had a contractual balance of €21.3bn and a book value of €4.7bn. The corresponding figures were €21.5bn and €4bn in 2023, €20.3bn and €3.5bn in 2024, and €19.4bn and €2.8bn at the end of 2025.
Over three years, the contractual balance fell by €1.9bn, while the book value also declined by €1.9bn, albeit from a much lower starting point. By the end of 2025, the amount recorded as owed was almost seven times the book value of the loans.
“The contractual balance reflects the scale of problematic debt that remains in the economy. The book value reflects the amount that is realistically estimated to be recoverable,” the analysis says.
Confusing the two figures, it adds, can make the problem appear either much larger or much smaller than it actually is.
The ‘shadow’ stock of bad loans
The loans now held by credit-acquiring companies represent the part of the crisis that no longer appears in banks’ NPL indicators.
“Cyprus largely resolved the banking NPL crisis before fully resolving the broader private debt problem,” Socratous writes.
Today, credit-acquiring companies hold the lion’s share of problematic loans, with the overwhelming majority remaining non-performing.
“These loans may have left banks’ balance sheets, but they have not left the economy. Behind the improved indicators are still borrowers trying to manage unresolved obligations, active restructuring negotiations, pressure from debt recovery procedures and effects linked to collateral and the property market,” the analysis says.
In some cases, the underlying financial distress has genuinely been addressed. In others, according to the analysis, the debt has simply changed hands, moving from one creditor to another while the borrower’s circumstances remain essentially unchanged.
The outstanding stock of Cyprus bad loans also continues to affect the property market through collateral sales, property recoveries and portfolios accumulated by credit-acquiring companies and other entities.
How banks cleaned up their balance sheets
The picture for Cyprus’ banks has changed dramatically. The NPL ratio fell from 38.6% in December 2014 to 1.6% at the end of 2025, below the European Union average of 1.8%.
The Common Equity Tier 1 (CET1) capital ratio increased from 14.2% to 25.8%, while NPL coverage through provisions rose from 31.7% to 62.1%. Return on equity moved from a negative 8.1% to a positive 12.9%.
The clean-up did not result from a single measure. It came through restructurings, repayments, recoveries, write-offs, debt-for-property swaps and sales of entire loan portfolios.
The stock of bank NPLs stood at €8.9bn in 2019. By the end of 2025, it had fallen to €800m.
Over that period, portfolio sales removed €4bn and write-offs accounted for €2.8bn. Repayments amounted to €2.2bn, recoveries to €1bn and debt-for-property swaps to €300m.
The report itself notes that non-organic deleveraging measures were the main driver behind the reduction in NPLs.
Until 2018, banks largely managed the problem loan by loan. The process is described as “painstaking, monotonous and often invisible”. It reduced part of the problem, but was not enough.
“The stock of NPLs remained enormous. Too heavy and unwieldy to decline through individual case management. Home care was no longer enough. Surgery was needed.”
From 2018 onwards, banks began treating NPLs as concentrations of risk that could be grouped, valued and transferred. A pivotal moment was Bank of Cyprus’ Project Helix, followed by other major transactions.
Co-op followed a different path
The Cyprus Cooperative Bank followed a different route. Its healthy banking operations were transferred to Hellenic Bank, while the majority of its problematic loans were moved outside the banking system.
“The impact on the system’s NPLs was immediate and significant. At the same time, however, it highlighted one of the fundamental principles of the Cyprus experience: problematic debt does not disappear entirely. Part of it moves.”
The result is a sharp distinction between the much healthier picture presented by today’s banking sector and the substantial amount of distressed private debt that continues to exist elsewhere in the economy.
The difficult balance over foreclosures
Managing the stock of loans now held by credit-acquiring companies inevitably brings foreclosures back into focus.
The analysis acknowledges that foreclosure is not an abstract process. It involves homes, business premises, family property and deeply rooted perceptions of social justice.
At the same time, it argues that a functioning foreclosure framework is necessary.
“If the recovery value of collateral becomes uncertain, if delays become chronic or if strategic default and the weakening of repayment culture are rewarded in practice, then the cost is passed on to future borrowers through higher interest rates and stricter lending criteria.”
The author distinguishes between viable borrowers who need time and support, non-viable borrowers who require an orderly resolution, and strategic defaulters who exploit weaknesses in the system.
Treating all three categories in the same way, the analysis says, would be economically inefficient and socially unfair.
Banking crisis eased, private debt remains
Banking indicators illustrate how far Cyprus has come since the financial crisis. But the €19.4bn contractual balance held by credit-acquiring companies shows how much of the wider debt problem remains.
“The banks appear to have closed their own chapter of the crisis. For many borrowers, however, that chapter is still being written,” Socratous concludes.
The analysis notes that the views expressed are those of the author and do not necessarily represent the positions of the Central Bank of Cyprus or any other organisation or authority.
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