Cyprus’ legal frameworks aimed at minimizing non-performing loans are inefficient and barely used by banks, whose bad debt stock continue to be a main liability.
The European Stability Mechanism (ESM) also reiterated that Cyprus has to resume reforms in essential sectors and also, diversify economic activity which current focus is construction and tourism.
In addition, the ESM has recently joined alongside the International Monetary Fund (IMF) and some other EU institutions which highlighted that the foreclosure framework passed by the government in 2014 was insufficient as it made it challenging for banks to collect their dues.
The high level of NPLs remains a core vulnerability for banks, which brings about the idea of a need for a reform of the insolvency and foreclosure and presents a risk for the economy going forward.
The ESM recognized the remarkable recovery achieved by the island over the past few years but stressed that it had to resume the stalled reform programme and diversify economic activity.