Banks adopt dead-end strate­gies

Financial Mirror (Cyprus) - - FRONT PAGE -

A healthy bank­ing sec­tor is vi­tal for a sound econ­omy. If banks are to put their house in order and avoid mis­takes of the past they must first and fore­most take the right de­ci­sions at the right time on vi­tal is­sues.

Six­teen whole months have gone by since the “hair­cut” and banks have failed to adopt a spe­cific strat­egy con­cern­ing is­sues like non-per­form­ing loans (NPL), their re­struc­tur­ing and prop­er­ties on mort­gage. We are all ex­pect­ing to see the fate of the bill in the House of Rep­re­sen­ta­tives about prop­erty fore­clo­sures and whether it will be en­acted into law, as de­manded by the Troika.

The Cen­tral Bank of Cyprus has al­ready is­sued di­rec­tions about the pro­ce­dures to be fol­lowed when re-struc­tur­ing loan pay­ments.

The Bank’s di­rec­tions of­fer solid ground for ne­go­ti­a­tion be­tween the two par­ties to reach a deal ben­e­fi­cial to both.

A great num­ber of peo­ple are will­ing and ready to co-op­er­ate with banks and work out a for­mula so that they switch around their NPLs and start pay­ing as much as hu­manly pos­si­ble.

Banks seem to have adopted a very hard stance, mak­ing out­ra­geous de­mands of their cus­tomers and ba­si­cally ask­ing them to agree to so­lu­tions well be­yond their means.

There are many ex­am­ples of such de­mands.

When banks are ap­proached to re-struc­ture loans they ask for new guar­an­tors, new mort­gages, in­creased in­ter­est rates, etc. Fac­ing eco­nom­i­cally drained debtors, banks have no in­hi­bi­tions and make un­re­al­is­tic de­mands.

The law of physics on force and ki­netic en­ergy states that “to ev­ery ac­tion there is an equal and op­po­site re­ac­tion”. Faced with such harsh de­mands, bank cus­tomers usu­ally re­spond by ter­mi­nat­ing any and all pay­ments, hop­ing that the re­pos­ses­sion law will not be passed any time soon or that they will be pro­tected by the govern­ment’s in­ten­tions to safe­guard the right to the pri­mary res­i­dence.

Banks as a mat­ter of prac­tice do not ac­cept pro­pos­als by their cus­tomers to buy their prop­er­ties at to­day’s low prices in ex­change of par­tial / full re-pay­ment of their loans.

Con­sid­er­ing all of the above one has to ask. What is the banks’ strat­egy? To go ahead with mass fore­clo­sures? Not by a long shot. The rea­son is that such a devel­op­ment will prove cat­a­strophic for the coun­try’s bank­ing in­sti­tu­tions.

If such a devel­op­ment was to ma­te­ri­alise, the prices of mort­gaged prop­er­ties would fall dra­mat­i­cally, to the point where banks would need to make huge pro­vi­sions and would have to seek new and hard-to-find cap­i­tal to re­cap­i­talise them­selves.

As we be­lieve that banks are not sui­ci­dal by na­ture, we find it hard to in­ter­pret their strate­gies.

While mass fore­clo­sures are not to their ben­e­fit, and while they do not ac­cept pledged prop­er­ties against the NPLs, we can­not de­tect a will­ing­ness to find com­mon ground with their cus­tomers.

What is their aim? We need an an­swer.

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