NPLs re­duc­tion must re­main a pri­or­ity

Financial Mirror (Cyprus) - - FRONT PAGE -

The is­land’s financial as­sis­tance pack­age may have been a suc­cess but sig­nif­i­cant chal­lenges re­main with the re­duc­tion of the high stock of non-per­form­ing loans (NPLs) con­sid­ered as the top pri­or­ity, a Bruegel think tank con­fer­ence heard.

“This financial as­sis­tance pro­gramme was a suc­cess and I would like to stand by that. We’ve seen the econ­omy turn­ing around, we’ve seen bet­ter per­for­mance that we ex­pected, we’ve seen strong re­sults on the fis­cal side, al­ways ex­ceed­ing fis­cal tar­gets but there is still a level of fragility,” Vin­cenzo Cuzzo, the IMF res­i­dent rep­re­sen­ta­tive told the con­fer­ence or­gan­ised in the Univer­sity of Cyprus.

De­scrib­ing the re­duc­tion of the bank­ing sys­tem’s hign NPLs stock, Cuzzo said “NPLs which are ap­proach­ing 60% of to­tal loan fa­cil­i­ties are pre­vent­ing banks from be­ing banks,” not­ing that the at­ten­tion should not only fo­cus on the banks’ cap­i­tal but also on the broader econ­omy.

He de­scribed the ap­proval of the in­sol­vency frame­work and the fore­clo­sure regime as a ma­jor step but noted this should not be con­sid­ered as a com­pleted task.

“A ma­jor step for­ward but some el­e­ments of the frame­work per­haps de­part from what are re­garded as in­ter­na­tional best prac­tises. Is good leg­is­la­tion bet­ter than not hav­ing one? It is good to get started but we should mon­i­tor and take stock and to try to come back to it in the fu­ture,” he added.

Mar­ios Clerdies, former CEO of the Co­op­er­a­tive Cen­tral Bank, said that NPL dy­nam­ics ap­pears in­creas­ing in an ad­verse bank­ing en­vi­ron­ment.

“We hear dis­cus­sion of 60% in NPLs but if they have 100% in pro­vi­sions is an op­por­tu­nity, be­cause if you man­age to col­lect, that goes into bank prof­its,” the econ­o­mist and former banker said.

He pointed out that low cap­i­tal, the fact that the banks have en­tered a con­ser­va­tion mode, the low bank liq­uid­ity es­pe­cially in banks that have to re­pay emer­gency fund­ing as well as the pri­vate sec­tor over­lever­age, makes the banks very re­luc­tant to pro­vide new lend­ing.

On his part, UCY pro­fes­sor Michael Michael, stressed that ad­dress­ing the high NPLs re­mains the big­gest chal­lenge fac­ing the Cypriot econ­omy, but noted that the eco­nomic re­cov­ery, ex­pected to reach 1.5% of GDP in 2015, along with the sta­bil­i­sa­tion in the real es­tate sec­tor will as­sist the NPL re­duc­tion ef­forts sig­nif­i­cantly.

“The politi­cians need to send the right mes­sages,” he said, not­ing that the Cen­tral Bank of Cyprus should also help the banks to ac­cel­er­ate the speed of NPLs re­struc­tur­ing.

“As it is now it could take years to re­struc­ture all NPLs and the ex­ist­ing pace is very low,” he con­cluded.

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