The sharp increase in non-performing loans (NPLs) at the Cypriot Banks is not a unique or a novel phenomenon. The United States financial crisis that threatened to bankrupt banking giants that were deemed “too big to fail” and the bank run on Northern Rock in the UK are but just two famous examples where the balance sheets of banks were found loaded with “toxic loans”.
In Cyprus, the process of dealing with the challenge of the NPLs started upon the arrival of the Troika to Cyprus in 2012. The first important step in this process was to acknowledge the problem and understand its size and contributing factors. An arrears Management framework and a banking code of conduct were quickly put in place, while the focus of the banks in granting new loans shifted almost exclusively on repayment capacity of the borrower rather than collateral value.
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