CYPRUS Law and Practice Contributed by: Kyriacos Scordis, Anna Borovska and Constantinos Kazamias, Scordis, Papapetrou & Co LLC
1. Loan Market Overview 1.1 The Regulatory Environment and Economic Background
(No 122 (I)/2024) (the “Credit Law”), transposed into national law the provisions of EU Directive 2021/2167 (the “NPL Directive”) into national legislation. The NPL Directive regulates the sale, purchase and servicing of non-performing loans (NPLs) originated by EU banks. It aims to reduce the build-up of NPLs within EU banks, and does so by creating a framework to help foster a secondary market in NPLs, while ensur- ing this will not adversely affect borrowers. An additional measure to the law was passed in 2018, namely the Securitisation of Credit Facilities or Oth- er Forms of Claims or Exposures Law (88 (I)/2018) (the “Securitisation Law”), which enables a lender to refinance a set of loans, exposures or receivables by transforming them into tradeable securities accessi- ble to investors. Its goal was to ease the minor loan market, and hopefully, ultimately, reduce the number of NPLs. 1.2 Impact of Global Conflicts Despite the turmoil of the recent economic and geo- political events, the Cyprus banking sector has shown resilience throughout the past years. In particular, Cyprus maintained a high liquidity level in 2024, with its Liquidity Coverage Ratio standing at 332%, a figure which is significantly above the EU average of 161%, and its Common Equity Tier 1 ratio being 24.48%. These statistics further prove that the Cyprus bank- ing sector has built up capability to absorb any future shocks which changing times may bring. It is worth noting that the ongoing impact of the Rus- sia-Ukraine conflict does not appear to represent a threat to the domestic banking industry, as exposure of the Cypriot banking sector to the Russian market or sanctioned individuals is limited. In particular in 2023, Russian nationals accounted for only 0.8% of total loans and 4.7% of total deposits. In contrast, the Israeli-Palestinian conflict may pose a direct credit risk to Cyprus given the fact that Cyprus is dependent on Israel for the supply of oil and gas. Until now, the economy looks resilient to these shocks. 1.3 The High-Yield Market The issue of corporate bonds, other than to related parties, is not a common feature in Cyprus, at least
The Cypriot economy has continued to record a note- worthy growth, mainly driven by a faster than expected recovery in tourism-related activities and, to a lesser extent, by growth in information and communication activities and in professional services. In addition, the credit rating of Cyprus has also improved, which in turn has aided banks, financial institutions and pri- vate companies to raise capital, uphold strong capital positions and reduce the amount of non-performing loans (NPLs). The ratio of NPLs decreased to 6.2% by the end of December 2024, down from 6.5% at the end of September 2024. Since the 2013 bank- ing crisis, the banking sector has had to restructure the way it functions, by refining and strengthening its capital and investing in its corporate governance. All domestic banks have been under the supervision of the European Central Bank (ECB) and gone through various stringent assessments that have successfully created more robust and steady foundations. A popular trend in the market has been the consoli- dation of businesses via mergers and acquisitions, including in the financial sector with larger banks acquiring smaller ones, whilst particular divisions han- dling the management of NPLs have improved lending conditions in general. A milestone for 2025 has been the buyout of Hel- lenic Bank PLC by Eurobank SA (of Greece) from the former’s remaining shareholders, and the merger of Eurobank Cyprus Ltd and Hellenic Bank by their com- mon parent. This process is expected to be concluded within 2025, and will result in the creation of potentially the largest financial institution in Cyprus and further consolidation in the sector. Reforms, New Laws and Current Trends Reforms of the island’s legal and judicial structure include the new state scheme (ESTIA), which aims to support vulnerable borrowers who are encountering financial problems repaying their loans backed by their family home (main residence). In addition, the Credit Servicers and Credit Purchasers and Related Matters Law of 2024, which was enacted on 8 November 2024
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