Bank boss says foreclosures will help restart lending

Bank of Cyprus CEO John Hourican told employers that the much-delayed law on foreclosures must be put in place as this would be an important step for lending and financing to resume and kick-start the economy.

The foreclosures bill was supposed to have been voted on during Thursday’s parliamentary plenum, but a delay by the government to submit a parallel framework on insolvencies irked opposition parties that introduced a counter bill postponing the implementation of the foreclosures, an obligation as part of the bailout programme.

As a result, the Troika of international lenders froze payments. This bloated the political parties’ arrogance, claiming that all they want is to protect the primary homes of low-income households from being repossessed by banks amid high unemployment and inability to repay mortgages, pushing the rate of non-performing loans (NPLs) to 50% of the national loanbook.

A document leaked last week, allegedly by the Bank of Cyprus, showed that 29 of the 56 members of parliament had NPLs that they had no intention of repaying.

Speaking to members of the Employers and Industrialists Federation (OEV) in Nicosia, Hourican said that the bank is reviewing every single troubled loan with the aim to restructuring.

“We want to ensure that all businesses have a chance to succeed”, he said, referring to the recent cut in lending rates by one percentage point.

Hourican said sentiment in the market is changing and that “people want the economy to perform and we need to change the agenda from always talking about fiscal contraction and austerity to actually getting people’s confidence levels up to invest. So, we have to move the agenda from one of austerity to one of prosperity so that we can create a future for young people of Cyprus and indeed their kids.”

As regards capital levels, Hourican said that the bank has already reduced its emergency liquidity assistance (ELA) from EUR 11.4 bln at the start of the economic crisis in 2013 down to EUR 7 bln, noting that “EUR 4 bln is gone so it is possible … to further reduce the amount” of dependency on ECB funding.

“Today we are running very high levels of liquidity in the bank because we are willing to lend, we want to lend and also want to keep ourselves safe given the economic turmoil around us, whether that is in Europe generally, whether it is the shadow cost by Greece, or the shadow cost by events particularly in Russia. We could repay a lot more ELA but we are choosing to have it available to Cyprus’ economy if we can find someone to use it,” he said.

Retaining some of the bank’s capital buffers and lending to the local market in order to restart the economy had been a long demand by stakeholders, but the management had insisted on lowering its ELA obligations in order to be able to borrow later at batter rates.

However, with the European Central Bank’s quantitative easing (QE) programme underway from this month, the market expects Frankfurt to support Eurozone growth by buying up bonds and injecting fresh capital for growth and development throughout the EU. Cyprus cannot partake in the QE programme until it passes the foreclosures bills and resumes its commitments to the economic adjustment programme as part of the EUR 10 bln bailout.

OEV President Christos Michaelides said after the meeting with Hourican that the banking sector in Cyprus is a very crucial and important sector in the efforts to achieve growth and restart the economy.

“We invited Mr Hourican here to discuss with him and exchange views on how we could better assist our members, since this will have a positive impact on the bank as well”, he concluded.