Cypriot banks substantially accelerated the reduction of their legacy nonperforming exposures in 2020, DBRS Morningstar said in a report on Tuesday.
It noted that the NPE ratio dropped by 10 percentage points throughout 2020. Furthermore, NPEs not provisioned for reached their minimum in several years.
DBRS Morningstar expects sales of bad loans to non-bank institutions to remain the main driver of the NPE reduction. The Canada-based rating agency also noted that the battery of support measures has effectively reduced and deferred the potential impact on banks’ asset quality during 2020.
However, as the extraordinary support is withdrawn, credit losses could start to accumulate in the system. Nevertheless, nonperforming assets and overall leverage remain high, it noted.
“DBRS Morningstar views positively some of the measures to continue addressing the challenges and will continue to monitor their implementation,” the agency stated.