Economic contraction in crisis-stricken Cyprus slowed down in the first quarter of 2014

 Economic contraction in crisis-stricken Cyprus slowed down in the first quarter of 2014, according to data released by the Cyprus Statistical Service on Wednesday.
It said Gross Domestic Product (GDP) dropped by 0.7 percent in the first three months of the year, compared to 0.8 percent during the fourth quarter of 2013.
International lenders who approved a 10-billion euro loan for Cyprus under an economic adjustment program in March 2013 estimate that the economic contraction by the end of 2014 will reach 4.8 percent of GDP, which is much lower than original projections.
The economy is expected to return to a modest 0.9 percent growth in 2015.
Economic growth is held back by a still shaky banking sector which had to start almost from scratch after international lenders forced on it a resolution involving the first ever recapitalization by converting part of large deposits to bank equity and the winding down of the eastern Mediterranean island's second largest lender.
Cypriot banks had to recapitalize under an EU directive to raise their core tier-1 capital to 9 percent, after they suffered heavy losses because of their extensive exposure to the Greek debt which was devalued by almost 75% in 2012.
Data released by the Cyprus Central Bank on Wednesday showed that non-performing loans went up in March, mainly because households were unable to service them as a result of continued unemployment.
Non-performing loans increased by 212 million euros to a total of 26.77 billion euros.
The increase was exclusively in loans given by the cooperative credit network which mostly deals in financing small businesses and family housing and education.
Cooperative non-performing loans topped the 50 percent mark as many households were unable to repay their loans as a result of high unemployment.
Despite a 1.5 percent year-on-year drop in unemployment in May, about 73,000 people, or over 17 percent of the total workforce, are out of work.
Commercial banks are in a better condition as far as non-performing loans are concerned with their total standing at about 41 percent of their loan portfolio, about 5 percentage points below its peak.
The level of non-performing loans held by commercial banks has shown an improvement following a restructuring drive over the last few months.
The Central Bank said 13.17 percent of non-performing loans representing 6.31 billion euros were restructured by the end of March, 2014.
Loan restructuring in the cooperative network stood at only 4.9 percent at the end of March as a result of a restructuring of the cooperative network itself.