articles | 19 October 2014

Encouraging signs from Coop Banks’ restructuring

The Cooperative Central Bank (CCB) is receiving encouraging signs from its restructuring operations, its chairman said a day after the bank posted profits of €85.6m for the first half of 2014.

“More emphasis will be placed on the organisation and operations, but restructurings are a critical topic,” Nikolas Hadjiyiannis told state radio CyBC in an interview yesterday.

“As a board we made available all resources needed, such as human resources or computer systems.We monitor this and see encouraging messages such as borrowers’ cooperation and their eagerness and willingness to service their loans as best as they can”.

The chairman of the CCB, which serves as an umbrella company for the 18 cooperative saving banks and received €1.5 billion in taxpayer’s money in March as part of a bailout, added that “we see an increase in what we collect and we are cautious that restructurings are not only economically viable, but also fair and balanced”.

Hadjiyiannis said that based on past experience of other banks, which agreed to the restructuring of non-performing loans just to see the owed amounts double, the CCB will also take their economic viability into account.

The CCB, whose loan restructuring and management unit became operational on June 1, saw its non-performing loan ratio rise to just over 53% in June from below 46% six months earlier.

“Challenges persist; the environment is difficult having experienced a strong shock,” he said, and added that while the lender, which is one of the four systemic banks participating in the European Central Bank’s asset quality review, has a “long road ahead” even as it is now “standing on solid ground”.

Results will take time to become visible, Hadjiyiannis said, mainly due to new regulations which rule that a previously non-performing loan has to be serviced for six months before it is considered as performing. “Sudden action won’t help,” he said.

The ECB stress tests, as the review is also known, comprise an analysis of each bank’s balance sheet as at the end of 2013, allocating risk-weighted value to its holdings, and a subsequent estimation of recapitalisation needs under normal economic circumstances, considered as the baseline scenario, and under extreme economic conditions, deemed the adverse scenario. They aim at a establishing a bank’s capital adequacy before it is subjected under the ECB’s direct supervision.

Banks deemed undercapitalised in the base scenario will receive a six months deadline to raise their core tier 1 capital ratio to 9% while those found undercapitalised in the extreme scenario will receive a nine month deadline to increase it to 5%. The CCB’s core tier 1 capital stood on June 30 at 13.6%.

Source: Cyprus Mail

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