International lenders concluded a fifth review of Cyprus’s economy on Friday, saying the island was making “relatively good progress” after a bailout last year but that key challenges lay ahead.
Representatives of the lenders, comprising the European Commission, the International Monetary Fund and the European Central Bank, said the island’s fiscal performance was on track and that the banking sector had started to stabilize.
But it said nonperforming loans exceeding 50 percent of banks’ domestic bank loan books needed to be addressed.
Lenders and representatives of the Cyprus government agreed on key provisions of a more effective foreclosures law to replace the time-consuming current process, under which it could take a bank up to 20 years to reclaim what it has lent.
“The key challenge is getting a handle on the nonperforming loan issue,” a senior European Commission source said.
“Right now, nonperforming loans are exceeding 50 percent of domestic banking loan books. It’s crystal-clear this is an issue which needs to be addressed.”
The law will require ratification by Parliament and will exclude primary residences from foreclosure until a new and more effective insolvency law takes effect from January 1.
Commission officials said that was a “prior action,” which means it must be approved by Parliament before new aid is disbursed.