NICOSIA, Nov. 8 (Xinhua) -- The European Commission warned Cyprus of the risks to its economy from the high rate of non-performing loans (NPLs), despite its spectacular comeback after the 2013 crisis, a commission report said on Thursday.
Non-performing loans are the most serious legacy of the crisis which was resolved in March, 2013 through a 10 billion-euro bailout by the Eurogroup and the resolution of the banking system.
Bad loans peaked to over 40 billion euros in 2014, representing 52 percent of the total loan portfolio.
Central Bank of Cyprus said the latest figures showed that NPLs dropped to 16.61 billion euros at the end of July, 2018, representing 40.4 percent of total bank facilities.
Pierre Moscovici, the EU commissioner for the economy, said in a projection on the Cypriot economy that risks linked the banking sector and the high rate of NPLs remain.
Bad loans forced the banks to make high provisions which stood at 7.99 billion euros in July, 2018, against a total of 41.15 billion euros in bank advances to customers.
The Moscovici report said that economic activity is forecast to remain strong, driven by domestic demand, unemployment is expected to continue its rapid decline, while headline inflation is projected to pick up only moderately.
"Robust economic growth is expected to support sustained budget surpluses and a decline in public debt from 2019 onwards, although the banking support measures in 2018 shifted public debt upwards and are likely to have deficit-increasing effects," the report said.
It added that economic growth in Cyprus remained strong in the first half of 2018, backed by solid private consumption, investment and exports, with real GDP growing by 4 percent.
It projected that growth is expected to remain fairly strong and above potential, albeit decelerating from 3.9 percent in 2018 to 2.9 percent in 2020.
Unemployment, which fell to 8.3 percent at the end of last month, is projected to drop to 4.8 percent in 2020, which the Cypriot minister of labor said it is considered in practical terms to be full employment. (1 euro = 1.14 U.S. dollars)
