Cyprus could create bad bank to help borrowers

Cooperative Central Bank chief executive Marios Clerides said last month that the state could buy nonperforming loans from Cypriot banks to help smaller borrowers by establishing a bad bank.

“For us it is convenient because we have a lot of loans of this type,” Clerides said in an interview to state-radio CyBC. “The problem is whether there are sufficient funds to support this effort”.

He added that the Cooperative saving banks were slow in restructuring non-performing loans as their staff has to deal with “a large number of smaller loans”.

Cyprus could also use 1 bln euros in bailout money initially earmarked for the recapitalisation of the cooperative banking sector, but remains unused after the CCB successfully completed the European Central Bank’s asset quality review in October.

Cyprus could introduce a scheme similar to that of Ireland which established the National Asset Management Agency in 2009 which bought problematic loans from banks, or a similar structure Greece is about to introduce, Clerides said, adding that this would also require the introduction of an effective legislative framework.

The general manager of the CCB said the organisation saw its deposits following the completion of the ECB’s stress tests increase by 330 mln euros.