European Central Bank (ECB) Executive Board Member Benoit Coeure spoke with Cypriot newpspaer Fileleftheros. He said that reasons for the ECB’s targeted longer-term refinancing operations were lower than expected for many reasons including the disclosure of a comprehensive assessment of euro area banks in October.

“Household and corporate indebtedness in Cyprus is among the highest in the euro area,” he said. “The cost of risk remains elevated despite some recent improvements. In these circumstances, deleveraging is a natural phenomenon. Nonetheless, banks should make good use of the available lending opportunities and support viable borrowers. The comprehensive assessment has confirmed that, on aggregate, the banking sector is adequately equipped with capital and that constraints on lending arising from the situation of banks are becoming less significant, both in Cyprus and the rest of the euro area.”

He said that the Cypriot economy needs a functioning banking sector that can contribute to economic recover. “That can only be achieved if the non-performing loan issue is addressed forcefully. For that, the structure of incentives would have to be changed, so that both borrowers and lenders have a common interest in finding a pragmatic solution to the debt problem,” he said, adding that the data is showing that this is not taking place. Instead, Mr. Coeure points to an increasing in non-performing loans in Cyprus.