“The ECB will want to see evidence that banks are able to reduce press.
For the entire banking system, non-performing exposures (NPEs) – the broader measure of bad loans – were cut by €3.1bn in 2016 and the trend is clearly downwards. However, the NPL ratio among the three systemic banks is still well above 50%, and the ECB want to see more action.
Bank of Cyprus has created a real estate management unit (REMU) that manages properties valued over €1bn acquired as part of debt-to-asset swaps. In January, Hellenic Bank created its own real estate company with APS Holding that specialises in bank real estate properties in Europe.
The banks’ plans will be reviewed every quarter and, if the lenders fail to meet their targets, regulators could step in and push for other solutions.
“We are thinking that the time for a bad bank funded by private investors might have come. At this point, banks are more ready for this and a growing economy could attract investors that will help banks to offload their NPLs,” a person involved in the discussions told the press.
A bad bank forces banks to discount assets and puts pressure on their capital base. It is also likely to result in harsher debt-collection practices by the bank taking the bad loans.
“For the sake of these people, I really hope that we will not reach to a bad bank solution,” a top bank official told the press.