Lenders review bailed out CyprusComment on this story
Nicosia - A delegation from the troika of international lenders Tuesday began its fifth assessment of Cyprus's economy and troubled banking system, focusing on the threat of bad loans.
Some 45 percent of all loans at Cypriot banks are classified as non-performing - 27.1 billion euros from total lending of 60
billion euros, according to Cyprus Central Bank figures.
Non-performing loans (NPLs) represent 43 percent of bank loans and 51.7 percent of loans in cooperative banking.
The International Monetary Fund said earlier this month that the level of NPLs in Cyprus is the highest in Europe at almost 140 percent of GDP, curbing credit to the economy and stunting growth.
Cyprus has successfully completed four similar reviews from the troika - the European Commission, European Central Bank and International Monetary Fund.
The current week-long examination will focus on bank reform, a proposed national health scheme and how to deal with NPLs and home repossessions.
In previous reviews, Cyprus has been praised for sticking to a harsh bailout adjustment programme it agreed last year with the troika.
Nicosia has said it will adhere to the bailout agenda no matter how unpopular it is.
Cypriots have had to endure tough austerity measures which have seen wages slashed and consumer and property taxes increased.
In return for 10 billion euros in aid from international lenders, the island in March 2013 agreed to wind down its second largest bank, Laiki, and impose losses on depositors in under-capitalised largest lender, the Bank of Cyprus.
Its depositors were hit with a 47.5 percent bail-in as part of the bailout package.
Recession-hit Cyprus needs to pass this assessment to receive its next tranche of bailout cash.
It has already received half of the ten billion euros agreed last year.
Nicosia concedes that the greatest challenge is clawing back bad debt.
International lenders do not expect Cyprus - suffering record 17 percent unemployment and a credit squeeze - to exit recession until 2015.
The European Commission estimates that the economy will contract 4.2 percent in 2014 - lower than the initial 4.8 percent forecast - but growth will be pegged back to 0.4 percent in 2015 rather than the previously expected 0.9 percent. - Sapa-AFP