CBC Governor: “It will take 3-5 years for NPLs to fall to 10%”

Central Bank of Cyprus (CBC) Governor Chrystalla Georghadji that based on the international experience, it will take three to five years with a growth rate of approximately 3% for non-performing loans (NPLs) to fall from 47% today to 10% of the total loan portfolio.

Briefing the House Finance Committee, Georghadji said that the CBC requested the assistance of International Monetary Fund (IMF) to examine how much time it will take to reduce NPLs at a low rate. She said that the IMF replied that it would take three to five years for NPLs to fall to 10% of the total loan portfolio.

However, she explained that in her opinion a growth rate of around 3% of GDP would be needed to see substantial reduction of NPLs.

In relation with the growth rate, Georghadji said she expects that GDP will record an increase of 1.5% or bigger in 2015 and at least 2 % in 2016.

Pointing out that the upward trend of of non-performing loans has been reversed, she provided data according to which loan restructurings increased by 58% during the third quarter of 2015. Loans that have been restructured by September 2015 amounted to EUR 14 bln, of which 10.5 bln are still considered as NPLs according to the Directive of the European Banking Authority, saying that the restructured loans are calculated as NPLs for a year.

Regarding the allocation of new loans, she said that in 2015 business loans increased by 3.1%, while the granting of housing loans increased significantly.

Recalling that the lending rates were reduced by 1%, a fact that helped the demand for new loans to increase, she added however that demand remains weak. At the same time she stressed that high lending rates is a “Gordian knot”, and added that “we must not forget that we are a country that has not regained the confidence, thus many of the loans are risky.” The aim, said Georghadji, is to further improve the speed and sustainability of loan restructures.

She also said that the CBC will soon post a digital platform on its website, which will allow borrowers to monitor their loans and communicate with the bank to request restructuring solutions.

Acknowledging that CBC needs reorganisation, restructuring and corporate governance, the Governor said that between December 2 and 10 an IMF team will be in Cyprus to provide technical assistance and recommendations on corporate governance.

Asked how her relations are with the President of the Republic, Georghadji said that her relations with the President are “very good.”

“And I am not aware of anything else that differentiates these good relations. I ought to have these good relations,” she said.

Last May, President Nicos Anastasiades said he would move to file an application for the dismissal of Central Bank (CBC) Governor Chrystalla Georghadji with the Supreme Court, after allegations that the Governor had altered her contract and that there was conflict of interest arising from her daughter representing ex-Laiki boss Andreas Vgenopoulos, while Georghadji was the head of the resolution authority that took over now defunct Laiki.