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Cyprus Recorded Highest Non-Performing Loans In The European Union: An In-Depth Analysis

Cyprus recorded the highest non-performing loans across the European Union in 2024, signaling significant vulnerabilities within public sector balance sheets, according to Eurostat data.

Government Guarantees Under the Microscope

Eurostat’s report reveals that government guarantees remain the most prevalent form of contingent liabilities among EU nations, typically providing backing for both liabilities and occasionally assets of third parties. Notably, the Netherlands led with government guarantees reaching 31.0 per cent of GDP, followed by Finland at 17.0 per cent and Italy at 14.6 per cent of GDP. In stark contrast, Ireland, the Czech Republic, and Bulgaria each maintained guarantees at or below 1 per cent of GDP.

Central And Local Government Roles

The analysis confirms that, in most cases, central governments serve as the primary guarantors. However, certain countries, including Finland, Sweden, France, and Denmark, exhibited significant involvement from local government bodies, underscoring diverse governance approaches in risk management across the EU.

Public Corporations And Off-Balance Liabilities

Beyond contingent liabilities, Eurostat detailed stark differences in liabilities held by public corporations outside the general government. Germany, for instance, faced the highest level at 84.4 per cent of GDP, while the Netherlands, Luxembourg, and France followed closely. Conversely, Cyprus, Slovakia, Spain, and Romania reported substantially lower levels, with Cyprus at an exceptionally modest 7.3 per cent of GDP.

Cyprus’ Elevated Non-Performing Loans

Of particular concern, Cyprus recorded non-performing loans equating to 9.0 per cent of GDP – a figure that dwarfs those of other EU nations, where levels remained below 1 per cent. Additional data from Croatia, Greece, and Sweden indicate marginally higher figures, yet they pale in comparison to Cyprus’s predicament.

Off-Balance Public-Private Partnership Liabilities

Liabilities linked to off-balance sheet public-private partnerships remain largely contained, not exceeding 2 per cent of GDP in any member state. Portugal, Slovakia, and Latvia reported the highest shares in this category, with liabilities primarily tied to motorway construction projects.

Mercedes-Benz Posts Higher Profit Despite China Slowdown

Mercedes-Benz reported stronger-than-expected second-quarter results, lifting its shares on Tuesday despite mounting pressure from Chinese automakers and a weaker outlook for sales and revenue.

The earnings provided a boost for Europe’s auto sector, where manufacturers continue to grapple with tariffs, softer demand and intensifying competition from Chinese rivals. Volkswagen, Mercedes-Benz and BMW have all accelerated restructuring efforts in response.

Cost Discipline Lifts Quarterly Profit

Mercedes-Benz shares rose as much as 5.9% following the results before trimming gains to trade 3.5% higher by 1118 GMT. The company reaffirmed its profit margin guidance for its core passenger car business after reporting an adjusted return on sales of 4.0% for the second quarter, above market expectations and within its 3% to 5% target range.

“In an environment where some automakers are ringing alarm bells on their competitive positioning, Mercedes delivered a clear and confident message,” Morningstar analyst Rella Suskin said.

Second-quarter operating profit increased 22% to €1.5 billion ($1.7 billion), despite a 3% decline in revenue. Lower administrative and research and development costs, together with strong performances from the financial services and vans divisions, supported earnings, while the results also included a €131 million gain related to the planned sale of leasing subsidiary Athlon.

China Remains The Key Pressure Point

Despite stronger profitability, Mercedes continues to face a challenging market environment. Sales in China fell 30% during the second quarter, prompting the company to abandon earlier expectations for stable car sales and group revenue. It now expects both to decline slightly from a year earlier.

BMW also lowered its outlook in June following a deeper-than-expected slowdown in China, highlighting the pressure facing Germany’s premium carmakers. At the same time, Mercedes said Chinese manufacturers are increasingly expanding into European markets, although Chief Executive Ola Kaellenius said their focus remains on higher-volume segments rather than the premium market.

“But that is not a reason to sit back and be relaxed,” he said.

Manufacturing Shift Continues

Mercedes is also reshaping its manufacturing footprint. The company said its German factories will undergo a more aggressive push toward leaner production, although it declined to provide further details while talks with labour representatives continue. Production is also being expanded in lower-cost Eastern European locations, including Hungary, where the company is increasing capacity at its Kecskemet plant, as well as in Poland.

Chief Financial Officer Harald Wilhelm said the full-year margin for the passenger car division is expected to come in at the lower end of the company’s guidance range, reflecting a higher share of electric vehicle sales in Europe, which remain more expensive to produce and continue to weigh on profitability.

“We must continue to work flat out to reduce costs so that we can remain competitive on the prices of our products,” Kaellenius said.

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