articles | 14 April 2015

Bad loans up for sale

The time has come for the Cypriot banks to offload their bad loans and start dealing with core banking business of taking deposits and lending, Hellenic Bank Chairwoman Irena Georgiadou told the press recently.

Non-performing loans (NPLs) in Cyprus have soared to above 50% – the highest levels in the eurozone – as the crisis hit and the swiping of deposits via the infamous bail-in or haircut undermined trust in the banks.

But opposition parties have postponed the implementation of legislation that would speed up the foreclosure process while giving greater protection to borrowers.

Banks do not have the expertise to run all these specialised loans, Georgiadou explained. Instead, the state should allow them to be sold to specialist vehicles. “We want to allow the transfer and sale of loans to non-banking institutions that have the expertise in certain areas of the economy, such as hotels and real estate. This will also help the business revival,” she said.

Georgiadou expects the process to attract foreign funds and attention from international investors that the Cypriot economy so desperately needs. It will also help revival of the moribund real estate market.

Creating a real market
Georgiadou said that the real estate market is currently based on assumptions made by valuers and not on a real market.

“Real transactions will help the real estate market recover and this could help banks and the whole economy to recover,” Georgiadou explained.

A person familiar with the matter told the Cyprus Weekly that banks are delaying loan restructuring because they expect to be allowed to sell their bad loans soon.

“Banks need their money here and now,” the person said. “By reconstructing a loan it means that they (the banks) delay their repayment for a few more years and will never be sure that they will be repaid eventually. That’s why they prefer the easy way of selling their loans.”

The idea of taking NPLs off the bank balance sheets was first introduced in the bailout plan with international lenders in 2013, which provided for the creation of a bad bank.

It was later on abandoned mainly because the country did not have the funds and it was thought that it could lead to a sharp drop on real estate values.

“Even though two years have passed and nowthe banks will need to sell at a heavy discount, banks should still offload their NPLs,” former minister of finance Michalis Sarris said to the Cyprus Weekly.

Hellenic Bank’s Chairwoman acknowledged the fact that the bank could even have losses from selling NPLs at a discount.

But she said that selling NPLs was part of a strategic exercise and not just bookkeeping.

“Hellenic Bank will want to be part of the special vehicles that will take over NPLs, because it believes in the Cypriot macro story. We believe in the upside and the recovery.”

Source: InCyprus

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