Banks favour ‘bad bank’ to exit NPLs quag­mire

Financial Mirror (Cyprus) - - FRONT PAGE -

The is­land’s chief cen­tral banker and ex­ec­u­tives from other lenders have come out in sup­port of es­tab­lish­ing a ‘bad bank’ that would ab­sorb the nearly EUR 22 bln in non­per­form­ing loans.

Speak­ing at an event or­gan­ised by the Cen­tral Bank of Cyprus and the Euro­pean Com­mis­sion Rep­re­sen­ta­tion in Cyprus, cen­tral bank chief Chrys­talla Ge­orghadji said she would sup­port such a pro­posal, say­ing that set­ting up an as­set man­age­ment com­pany (AMC) was in­cluded in the draft bailout memorandum ne­go­ti­ated be­tween Cyprus and the Euro­pean Com­mis­sion, the ECB and the IMF, col­lec­tively known as the Troika back in 2013.

“The CBC was the first or­gan­i­sa­tion that raised and sup­ported the is­sue (of a bad bank) from the minute the Troika ar­rived. Un­for­tu­nately for some rea­son which no one is aware of and we will never know, the pro­posal dis­ap­peared from the ta­ble,” Ge­orghadji was quoted by the Cyprus News Agency as say­ing.

Ni­co­las Had­jiyia­nis, Chief Ex­ec­u­tive Of­fi­cer of the na­tion­alised Cyprus Co­op­er­a­tive Bank said he too sup­ported such an ini­tia­tive “which would lead to a more rad­i­cal and holis­tic ap­proach in tack­ling NPLs.” He pointed out that proper plan­ning should be in place as is­sues re­lated with state aid are some­times vul­ner­a­ble.

“This op­tion could be done ear­lier but even now there is time for cor­rect plan­ning and grad­ual im­ple­men­ta­tion,” he said.

Hellenic Bank’s Chief Fi­nan­cial Of­fi­cer, Lars Kramer, said he would sup­port any mech­a­nism that could help the res­o­lu­tion of this is­sue.

He sug­gested that this dis­cus­sion should tackle is­sues such as state aid, fund­ing, the struc­ture of a mech­a­nism and the pric­ing of the as­sets to be trans­ferred from the banks’ books.

“But it would be help­ful, I sup­port any mech­a­nism that could help re­solve this is­sue,” he said.

Ad­dress­ing the event, Ge­orghadji said NPLs in the Cypriot bank­ing sys­tem de­clined to EUR 21.9 bil­lion from a peak of EUR 28 bil­lion in the end of 2014, but still rep­re­sent 44% of the to­tal loan book.

“We still have a long way ahead of us be­fore NPLs are no longer a threat to the banks, the econ­omy and to fi­nan­cial sta­bil­ity,” she said, adding, “Cyprus is faced with an ex­tra­or­di­nary level of NPLs across all sec­tors and ad­dress­ing this will take time. There is no magic bul­let.”

Ge­orghadji also said that given the pos­i­tive growth rates in the econ­omy, “the CBC is con­sid­er­ing re­vis­ing the cur­rent tar­gets by set­ting tar­gets and key per­for­mance in­di­ca­tors for the level of NPLs rather than for the re­struc­tur­ing ac­tiv­ity.”

Re­fer­ring to the pos­si­bil­ity of a secondary mar­ket for dis­tressed as­sets in Cyprus, Ge­orghadji said al­though this might be con­sid­ered as shal­low, due to the small size of port­fo­lios and the per­ceived illiq­uid­ity of the real es­tate mar­ket, “re­cent col­lab­o­ra­tions of two sig­nif­i­cant banks with for­eign ser­vic­ing plat­forms for the man­age­ment of NPLs, the grad­ual re­cov­ery of the real es­tate sec­tor and the con­tin­u­ous in­crease of NPLs pro­vi­sion­ing can po­ten­tially sup­port dis­tressed as­sets trans­ac­tions.”

Two of the is­land’s ma­jor banks said they are con­sid­er­ing op­tions re­lat­ing to the sale of loans.

“We do have a num­ber of trans­ac­tions un­der con­sid­er­a­tion, but it is too early to say,” Chris­tos Pat­salides, deputy CEO at the Bank of Cyprus, said.

He ac­knowl­edged that with­out a sale of loans the bank’s medium-term tar­get of re­duc­ing NPLs rate be­low the 30% level “will take a lit­tle longer.”

Re­fer­ring to the ef­forts to re­duce the bank’s NPL loan book, Pat­salides said delin­quent loans de­clined by EUR 5.2 bil­lion since their peak. “This is good progress but not good enough. A 50% NPL rate is un­ac­cept­able and we need to do more,” he added.

On his part, Had­jiyian­nis de­scribed the re­form in the Co­op­er­a­tive sec­tor as the largest bank­ing trans­for­ma­tion ever in Cyprus.

He added that the CCB is pre­par­ing a joint ven­ture with Span­ish as­set man­age­ment com­pany Al­tamira which will un­der­take the man­age­ment of the bank’s NPL port­fo­lio and real es­tate.

“We are look­ing for op­ti­mis­ing the way with which we are managing NPLs,” he said, not­ing how­ever that “time is the big­gest en­emy or the ob­sta­cle to NPL man­age­ment.”

“We have to de-risk our bal­ance sheet and the tar­get is to nor­malise our NPE lev­els based on the eu­ro­zone stan­dard. It is not ac­cept­able at EU level to have NPE ra­tio more that 30%,” he said.

Lars Kramer said Hellenic Bank op­tions for the sale of loans.

“We are cur­rently look­ing at our first NPL sale,” he said, with­out giv­ing any fur­ther de­tails.

On the joint in­vestor with loan ser­vicer, APS re­cov­ery, Kramer said this “would al­low for­eign in­vestors to feel more com­fort­able in terms of buy­ing NPLs.”

He said the bank has re­struc­tured 50% of its loan book while NPLs de­clined to 56% in June 2017 from 61% September 2014.

He ex­plained that NPL con­tin­ues hand delever­ag­ing, re­sult­ing in flat curve.

“So, we have been work­ing hard the past years just to be at a stand­still,” he added.

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