The loans that were renegotiated in the banking system reached record levels in the first half of the year, mainly due to the repeated increases in interest rates by the European Central Bank (ECB).
Based on data from the Central Bank of Cyprus (CBC), renegotiated loans in the period January – June 2023 shot up to €2,13 billion, showing an annual increase of 264% compared to €585 million in the corresponding period last year.
This is the highest amount of loans renegotiated on a six-monthly basis since the CBC began reporting data alongside net new loans (December 2014).
In an effort to tame inflation, which soared in the Eurozone after Russia's invasion of Ukraine, the ECB entered from July 2022 the phase of restrictive monetary policy, raising interest rates nine times in a row, or cumulatively by 400 basis points. ECB President Christine Lagarde has stated that in September another hike or a temporary pause in the cycle of hikes is expected.
Faced with soaring interest rates and repayments, borrowers, particularly large firms, are rushing to renegotiate or restructure their loans in an attempt to either lock in the interest rate before it rises further or extend the repayment period, in a precautionary move in order to prevent problems in servicing their loans. Loan renegotiations are also associated with rising costs due to inflation.
It is noted that the renegotiations mainly concern loans that do not show delays or credit deterioration and are therefore not included in non-performing loans, as defined by the directive of the European Banking Authority.
According to the data, the vast majority of renegotiations came from corporate loans over €1m, with the rest of the renegotiated loans amounting to €1,59bn or 74% of the total. On an annual basis, corporate loan restructurings of over €1 million show a percentage increase of 240%.
The renegotiations of housing loans also showed a large increase, which amounted to €322 million compared to only €58 million in the corresponding period last year, registering a percentage change of 455% on an annual basis.
The balance of corporate loans up to €1 million that were renegotiated in the first half of 2023 amounted to €159 million compared to €40 million in the corresponding period last year, recording a percentage increase of almost 300% on a year-on-year basis.
The renegotiations of loans both in the category other loans and consumer loans were also significantly increased, which amounted to €40 million and €24 million respectively, compared to €11 million and €10 million in the corresponding period last year.
It is recalled that the ECB entered the rate hike cycle from July 2022, with the result that the mobility in terms of loan renegotiations last year increased significantly from the second half of the year. Indicatively, loan renegotiations for the whole of 2022 amounted to €1,3 billion from €585 million in the period January – June 2022.
Towards a new historical record
It is noted that the amount of €2,13 billion in the first half of the year has already exceeded all of 2022 (€1,3 billion) while approaching the total loan renegotiations that took place throughout 2021 which amounted to almost €2,32 billion and was the previous record. In 2021 loan renegotiations had soared, as the end of 2020 had ended the moratorium on payment of installments due to the pandemic of Covid-19, which had been considered the broadest across the Eurozone.
Source: KYPE