Bank of Cyprus and Hellenic Bank hold an estimated €370 million in real estate assets reserved for sale according to the audits of 2015, while the Cooperative Central bank holds real estate assets worth €600m through its Property Management Directorate (PMD).

The real estate stock is still a small amount compared to the €24bn in non-performing loans (NPLs) that the institutions hold on their balance sheets: €13.9bn at Bank of Cyprus, €2.6bn at Hellenic Bank and €7.6bn at the Co-op.

The Bank of Cyprus audit also revealed that forced sales are expected to accelerate as a result of the pressure on the banks to reclaim real estate collateral which guarantees loans. The real estate assets reserved for sale are estimated according to their cost and net realisable value.

In December of 2015, the Bank of Cyprus changed its business model for dealing with real estate that it has acquired from customers as part of their efforts to provide solutions to those who had difficulty repaying their loans. This included real estate acquired through Laiki Bank in 2013.

Cuts in valuation

The bank has established a real estate management unit (PMD). According to the bank’s audit, creating a PMD, along with other steps taken, means that the majority of real estate that was previously considered an investment will now be reconsidered as real estate stocks, due to changes in their use.

This has led to a change in valuations of real estate from their fair value to a lower value that is between cost and net realisable value. As a result, during 2015 there was a devaluation of €17.29m in the value of real estate held on the bank’s books.

From December 31, 2015, reserves worth €496.59m are measured at their net realisable value, which is approximately their fair value minus costs related to selling the asset. These reserves included housing, office and commercial real estate, industrial, tourist real estate, plots of land and developments under construction.

The reserves, which were given as a guarantee to ensure financing from central banks as part of the Emergency Liquidity Assistance programme and eurozone monetary policy operations, are estimated to be worth €21.87m.

In the audit, Bank of Cyprus is shown to own real estate reserves in Cyprus worth €308.21m: €17.66m in housing, €122.88m in offices and commercial space, €18.17m in industry, as well as hotels worth €73.63m, plots of land worth €75.49m and real estate under development worth €365,000.

Meanwhile, Hellenic Bank’s Board of Directors authorised the creation of companies for the explicit purpose of transferring real estate which is acquired as part of loan repayments from customers.

Following the above decision, Hellenic Bank created Anolia Holdings in 2015, whose main activity is the possession and management of real estate put for sale.

The Group intends to sell the investment in 2016. On December 31 the fair value of the investment was estimated at €41.4m. During 2015 the real estate held for sale was estimated by independent auditors to be worth €71.8m for the Group (2014: €22.32m), and €69.96m for the bank (2014: €221.0m).

Regarding loans which are collectively examined, Hellenic Bank said that the time for liquidating a real estate asset ranges between five and six years, depending on the customer, while the total devaluation of an asset during liquidation is about 25%.

Source: InCyprus