The non-performing loan ratio has continued its downward trend despite the supply and demand shocks caused by the pandemic and the inflationary pressures and stands at 11,2 percent as at June 2022, with total non-performing loans amounting to € which is the lowest level observed since 2014 when the definition was harmonised across European Union. This significant asset side de-risking is attributed to both organic solutions such as restructurings as well as non organic through securitisations and sales. Therefore a large portion of the NPL reduction still remains in the economy through the credit acquiring companies. Indeed, the total amount of NPLs currently managed by these entities amount to € which is more than six times larger than the € NPL volume in banks' balance sheets. It must be pointed out though that the derisking process and progress has not been homogeneous across the system with the smaller Banks lacking significantly behind. Therefore, the close monitoring of asset quality enhancement of less significant institutions is high on our supervisory agenda The Central Bank of Cyprus, acted decisively in this regard by urging both the Banks and credit acquiring companies to proceed with viable restructurings with cooperative troubled borrowers, in line with the related directives and guidelines. In particular, since the expiry of the initial moratorium period (i.e. freezing of bank loan instalments) in December 2020, restructuring activity within 2021 increased significantly (by 251,5 percent) to € compared to € in 2020, indicating the effort made by banks to help distressed borrowers settle their obligations.

Going forward, and despite an impact from the war on the sectors previously mentioned, a continued downward trend in the overall unemployment rate is projected over the following years, converging closer towards full-time employment conditions in 2024, owing to the projected ongoing economic expansion and the expected manageable impact from the war. The latter is supported by survey data from the European Commission, where employment expectations by businesses across services and industry remained broadly unchanged since the outbreak of war. Turning now to inflation, the Harmonised Index of Consumer Prices (HICP) increased by 7,7% during the period January-July 2022 compared with 0,9% in the corresponding period of 2021. During the period under review, the surge in the domestic HICP, is mainly attributed to the sizeable adverse consequences of the Russian invasion of Ukraine and also due to the ongoing consequences of the pandemic. More specifically, the energy component of HICP is the largest contributor to the surging trend of domestic headline inflation (with around 45% share on HICP) during the period under review mainly due to the developments related to the Russian invasion of Ukraine which resulted to the exceptional soaring in the prices of oil and gas in international markets. Food prices also registered sizeable yearly increases (7,1% during Jan-July 2022 Vs -1,3% in the corresponding period of 2021) in the aftermath of the latest ongoing geopolitical tensions. At the same time, the remaining components of the HICP such as services, non-energy industrial goods also recorded significant yearly price increases.