As noted in the report, both Greece and Cyprus embarked on the journey of resolving NPLs with approximately half of the loans classified as non-performing. However, by the fourth quarter of 2022, both countries had managed to reduce the overall ratio of NPLs to less than 5 per cent. The report added that the two countries differ in the size of their loan markets, with the Greek loan market being approximately six times larger than the Cypriot market as of the fourth quarter of 2022. In addition, they are also different in terms of their credit ratings, with Greece holding a BB grade (high) and Cyprus a BBB grade, both with a stable outlook. Due to the significant difference in the size of the loan market between the two countries, the report continued, despite the high percentage of total loans, the NPL problem in Cyprus was much smaller in nominal terms.

As a result of the above factor, the reduction of NPLs on Cyprus’ banking balance sheets was much faster when compared to Greece. Moreover, the report noted that the transfer of the banking license belonging to the Cyprus Cooperative Bank in August 2018, and the conversion of the remaining entity into an asset management company, had a significant impact on the total amount of NPLs held by the country’s banking sector, which nearly halved, and reached €11 billion by September 2018. After multiple sales to international investment giants, this amount decreased to €2.3 billion by the end of February 2023. On the other hand, PQH Single Special Liquidation S.A., established in 2016 as the sole entity for all credit and financial settlements in Greece, covering approximately 20 banks, did not have such a significant impact on the reduction of NPLs. The agency explained that this was mainly because, after the merger of the Greek banking system, the four systemic banks, Alpha Bank, Eurobank, National Bank of Greece, and Piraeus Bank, contributed 95.7 per cent to the loan market.

When the “Hercules” programme (HAPS) was introduced in the fourth quarter of 2019, the nominal value of NPLs held by Greek banks amounted to €73.6 billion, with the NPL ratio standing at 40 per cent. After the introduction of this programme, a much faster decrease in the NPL ratio was observed, reaching 12.1 per cent by the end of 2021 and 8.2 per cent by the end of 2022. What is more, the agency stated that while there are 23 credit servicing companies operating in Greece, a smaller number, including doValue, Intrum, Cepal, and Quant, manage the majority of NPLs. In contrast, there are only five credit institutions licensed by the Central Bank of Cyprus. These are Altamira, Gordian Servicing, Themis, APS, and Hoist.

The Central Bank of Cyprus does not disclose the nominal value of loans serviced by credit servicing companies on its website, and public securitisations of NPLs are recent, with most business plans still being processed. The agency added that the difference in the path of resolving NPLs between banks in Greece and Cyprus stemmed from the difference in the size and composition of their loan markets. The non-performing loans belonging to the Cyprus Cooperative Bank were a significant portion of the total NPLs of Cypriot banks, and the conversion of the remaining entity into an asset management company provided an advantage to the country’s banking sector. In addition, the smaller size of the overall amount of NPLs in Cyprus allowed for a faster reduction.

Conversely, the large size of the Greek loan market, where the four systemic banks dominate, led the country to the launch of the Hercules programme (HAPS), which was financed by the government. Through different routes, both countries managed to reach NPL ratios lower than the 5 per cent threshold, while the anticipated second wave of NPLs has not yet occurred. Furthermore, the agency explained that in both countries, the servicing of NPLs is being handled by a concentrated number of loan servicers, and the majority of business plans for these have not yet been developed. It has also been reported that portfolio sales from existing structures could be the next step.

Finally, as portfolios continue to change hands, structured finance adapts to the needs of the evolving market and continues to play a vital role in assessing securitisations outside asset protection programmes.