NICOSIA, Cyprus - Cyprus' international creditors said Friday that the country's bailout program is making good progress as fiscal targets have been comfortably met, welfare reform has moved forward and more steps have been taken to shore up the weak banking sector.
But they urged authorities to tackle the high number of bad loans that are a drag on economic growth and job creation because they keep banks from lending.
In a statement issued after the end of Cyprus' fifth bailout review, the European Commission, the European Central Bank and the International Monetary Fund said that quickly passing foreclosure and insolvency laws is key to getting borrowers to pay off debt as bad loans account for more than half of all loans.
Cyprus' banks were at the center of last year's multibillion euro rescue deal that shocked savers by seizing their deposits in the country's two biggest lenders. Savers in the largest, Bank of Cyprus, saw nearly half their deposits turned into bank shares of much-reduced value. Smaller Laiki was shut down and partly folded into the larger lender.
A senior European Commission official, speaking only on condition of anonymity because he's not authorized to speak to the media, said collecting on collateral for soured investments can drag on for as long as 20 years. He said a new legal framework that is now being fine-tuned envisions cutting that time back to 1.5 to 2.5 years.
He said safeguards have been put in place to keep people who lost jobs during the crisis from also losing their homes.
The economy is projected to shrink 4.2 percent this year amid continued high unemployment, but is expected to grow 0.4 percent in 2015.
The next batch of bailout money -- 350 million euros ($470 million) from the EU and another 86 million euros ($115.5 million) from the IMF -- is expected to be approved in late September.