The banking sector in Cyprus is showing clear signs of recovery as lenders report a further drop in problem loans and stronger balance sheets heading into 2026. New data from the Central Bank of Cyprus shows non-performing loans are stabilising at some of the lowest levels in over a decade and broader indicators point to improved confidence in the finance sector and economy.
Banks are cutting their share of bad loans, but new figures also raise questions about coverage and restructuring trends as lenders face changing credit demand across sectors. Read on for the full details on what this means for the Cyprus economy and its banking customers.
Cyprus Reports Lower Non Performing Loan Ratio
Latest figures from the Central Bank of Cyprus show continued improvement in loan quality across the country’s banking sector. As of the end of November 2025, the non-performing loan ratio excluding loans to central banks and other credit institutions fell to 4.0 per cent, down from 4.2 per cent at the end of October 2025. This indicator focuses on loans to households and businesses.
When measured using the broader European Banking Authority methodology that includes exposures to central banks and credit institutions, the NPL ratio held steady at 2.1 per cent at the end of November 2025. This was unchanged from the previous month but still highlights a significant decline from levels seen in prior years.
These figures follow earlier reporting that the non-performing loans ratio had fallen to around 2.3 per cent by end September 2025, its lowest level since 2014 under the broader definition.
What the Data Tells Us About Bank Health
The improvement in loan quality is a major positive signal for the Cyprus economy and the banking sector’s overall stability. Banks have been reducing the share of bad loans on their books through restructuring, repayments and stricter credit standards over several years.
At the same time, data shows that banks are keeping high levels of liquidity, with deposits significantly outpacing loans. In October 2025, total deposits reached around 57.6 billion euros while total loans were around 26.8 billion euros, reinforcing balance sheet strength and risk absorption capacity.
Despite these gains, the coverage ratio for non-performing loans with provisions saw a slight decline to 70.4 per cent at the end of November 2025, down from 70.7 per cent in October. This measure shows how much banks have reserved to cover expected losses on problem loans and is a key risk metric for regulators and investors.
Restructured Loans Still a Part of the Picture
Even as overall NPL ratios fall, a portion of restructured loans — those that have had terms changed to help borrowers manage repayments — remain classified as non-performing.
At the end of November 2025, the total balance of restructured loans across the Cyprus banking sector stood at 1.10 billion euros, with around 0.50 billion euros of this still classified as non-performing. This suggests lenders are still working through legacy credit that required changes to terms to avoid defaults.
Earlier in the year, similar patterns were seen with restructured loans at around 1.2 billion euros in August 2025, with about half of those classified as NPLs under certain definitions.
Why Loan Quality Matters for the Economy
Non-performing loan ratios are among the most watched indicators of banking sector health. High NPL ratios can constrain lending, reduce profitability and slow economic growth. Cyprus has made consistent progress over recent years in reducing NPL ratios from elevated levels after the financial crisis and amid broader European trends.
The decline in NPLs, combined with strong liquidity, suggests that Cypriot banks are better positioned to support lending to households and businesses without excessive risk. This is important in a period where credit demand can fluctuate with global economic conditions and interest rate changes.
Low NPL ratios also bolster confidence among depositors and international investors, which helps the country maintain favourable funding conditions and supports broader economic activity.
What This Means for Borrowers and Businesses
For individual borrowers and businesses in Cyprus, the improved loan quality picture could translate into more stable lending conditions and potentially more competitive loan products as banks balance growth and risk.
However, some segments, particularly corporate lending, saw slower demand in parts of 2025, underscoring that economic recovery is not uniform across all sectors.
Mortgage and consumer loan demand among households has shown resilience, reflecting public confidence in the economy and in banks’ lending practices even as interest rates adjusted with broader European Central Bank policy.
Sector Outlook and Challenges Ahead
While the trend in lower NPL ratios is a strong signal, banks and regulators are carefully watching coverage ratios and the proportion of restructured loans still classified as troubled.
Coverage ratios provide a buffer against future defaults, and maintaining strong reserves is critical in a period of global uncertainty. External risks such as geopolitical developments and shifts in global economic demand remain factors that the Cyprus banking system will monitor.
Analysts also note that as corporate demand for credit revives, competition among lenders may intensify, which could lead to more favorable loan terms but also requires careful risk management.
As Cyprus continues to strengthen its banking environment, policymakers and institutions appear committed to balancing growth and stability, drawing on lessons from past credit cycles and leveraging strong liquidity positions.
