Banks favour ‘bad bank’ to exit NPLs quagmire
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.
is currently examining