Troika is back, NPLs and loan sales a con­cern

Financial Mirror (Cyprus) - - FRONT PAGE -

A joint mis­sion from the Troika of in­ter­na­tional lenders (EC, ECB, IMF) was back on Tues­day to con­duct its eighth eval­u­a­tion of eco­nomic ad­just­ment pro­gramme, aka “bailout plan” that ends in March, three years af­ter the EUR 10 bln res­cue was im­posed.

Dur­ing their 10-day stay, the in­spec­tors are ex­pected to fo­cus on the prob­lem of the non-per­form­ing loans (NPLs), an is­sue that was sup­posed to have been re­solved with the pas­sage of new laws on in­sol­ven­cies and fore­clo­sures. How­ever, the value of NPLs seems to re­main doggedly high and near the 50% of all loans in the Cyprus bank­ing sys­tem.

The Troika mis­sion, that ar­rived a week af­ter the last twonotch up­grade of the Cyprus sov­er­eign rat­ings by Fitch, based on “im­prov­ing fis­cal fun­da­men­tals”, will also look into the is­sues of the sale of loan port­fo­lios, the con­tin­ued im­ple­men­ta­tion of struc­tural re­forms and the cur­rent pace of pri­vati­sa­tions.

As part of the EUR 10 bln bailout plan, the Troika had called for the pri­vati­sa­tion of ma­jor pub­lic ser­vices, such as telco Cyta, the power com­pany EAC and the ports author­ity, with only the lat­ter see­ing progress as about 30 multi­na­tional have sub­mit­ted bids for the man­age­ment of the pri­mary port of Li­mas­sol by next sum­mer.

The pri­vati­sa­tions are ex­pected to re­duce the pay­roll cost bur­den on state funds and even raise some EUR 1.4 bln in rev­enues by 2018.

Last week, the gov­ern­ment also suc­cess­fully raised EUR 1 bl from a 10-year eurobond (EMTN) with a yield of 4.25%. This was only the third foray into the in­ter­na­tional mar­kets since 2011, and the Fi­nance Min­is­ter said the bulk would be used to re­deem higher-in­ter­est bonds.

IMF spokesper­son Jerry Rice re­port­edly said last week that as the Cyprus econ­omy re­cov­ers and re­ces­sion re­cedes, so is the abil­ity of bor­row­ers strength­ened to ser­vice their debts.

He added that al­though NPLs is a “se­ri­ous prob­lem”, un­em­ploy­ment also re­quires time and sys­tem­atic ef­fort to cir­cum­spect. But he also pointed out that the first signs of de­cline of NPLs are al­ready show­ing.

IMF Rep­re­sen­ta­tive to the is­land Vin­cenzo Guzzo, deemed the re­duc­tion of high NPLs as a high pri­or­ity, adding that that at­ten­tion should not only fo­cus on the banks’ cap­i­tal but also on the broader econ­omy.

The state-run Cyprus News Agency re­ported that dur­ing the eighth eval­u­a­tion, the lenders will also fo­cus on the im­ple­men­ta­tion of struc­tural re­forms in or­der to boost growth and em­ploy­ment, but also to se­cure the sus­tain­abil­ity of the pub­lic fi­nances.

At the same time, sev­eral crit­i­cal is­sues are still pend­ing, in­clud­ing the gov­ern­ment bills that will be dis­cussed in par­lia­ment re­gard­ing the pub­lic ser­vice re­form, the au­ton­omy of pub­lic hos­pi­tals, the im­ple­men­ta­tion of the long-de­layed Na­tional Health Scheme, the ap­proval by the Par­lia­ment of the bills on sale of loans, as well as the pri­vati­sa­tion of Cyta and the sep­a­ra­tion of EAC ac­tiv­i­ties.

Cen­tral Bank of Cyprus Spokesper­son Aliki Stylianou said the Troika del­e­ga­tion will have meet­ings with rep­re­sen­ta­tives of the three main com­mer­cial banks of Cyprus and will dis­cuss in length the is­sue of NPLs.

They will also re­view the prin­ci­pal and liq­uid­ity sit­u­a­tion of the banks and of the im­ple­men­ta­tion of their re­struc­tur­ing plans.

On Tues­day, Troika del­e­ga­tions held meet­ings at the Direc­torate Gen­eral for Euro­pean Pro­grammes, Co­or­di­na­tion and De­vel­op­ment (for­merly Plan­ning Bureau) to dis­cuss is­sues re­lated to tax­a­tion and tourism.

Troika del­e­ga­tions were also ex­pected to meet with tech­nocrats from the Min­istry of Fi­nance in or­der to dis­cuss pub­lic fi­nances and the Guar­an­teed Min­i­mum In­come (GMI) ben­e­fit for low-in­come house­holds.

The head of the in­ter­na­tional lenders will be in Cyprus on Novem­ber 8, in or­der to dis­cuss with the Fi­nance Min­istry the fi­nal con­tent of the up­dated mem­o­ran­dum.

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