15/11/2024 08:57
Morningstar DBRS Ratings has issued a commentary analysing the performance of Spanish, Portuguese, and Cypriot nonperforming loan (NPL) transactions, noting that despite the challenges, the Cypriot market maintained its upward trend in 2024.
The report includes data on three Cypriot projects: Hestia Financing, Titan Financing, and Capella Financing, which show significant progress compared to previous estimates.
It says that the latest performance of Cypriot NPLs shows an overall improvement in collections, despite the initial underperformance compared to business plans. Specifically, Capella managed to increase its CCR (annual collection rate) by 5.8%, while Titan and Hestia showed a smaller increase of 1.7% and 3.8% respectively.
DBRS says that Cyprus’ strengthened banks have managed to reduce non-performing loan ratios, especially in the mortgage sector, with NPLs falling by 254 basis points (bps), one of the largest in Europe. This progress is due to deleveraging measures and higher collateral quality.
Despite the pressures caused by the European Central Bank’s tight monetary policy, the real estate market in Cyprus has been supported by demand for foreign labour and lower interest rates, allowing NPLs to perform better than initially expected. Rating agencies responded by upgrading their forecasts, changing the Hestia and Capella trends to positive from negative.
DBRS analysts note that if this stabilisation continues, additional positive changes in credit ratings are expected. However, the report warns that for specific projects such as Titan, the relatively lower collateralization of senior securities may create pressures in the event of lower than expected receipts.