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Developers are the problem says bank chairman

The Bank of Cyprus is on a frontal attack with the big property developers, as its separation into a commercial and real estate bank aims to secure billions that were injected to the real estate sector.

SPEAKING on the state radio the temporary Chairman of the Bank of Cyprus, Sophocles Michaelides, said that the Bank is facing a huge number of non-performing loans, the majority of which stem from the land development sector which has received billions of Euros in loans which currently cannot be served.

“I have to tell you that these loans came from deposits and the bank although it pays interest on deposits it has not received interest from land developers. These are the major insecurities deriving from the property sector and not from households and small businesses, which are mostly very consistent”,  said Mr Michaelides.

He stressed that the bank does not have many options and should follow this practice.

Then, he criticized previous management and administration which, as claimed, did not follow best practices as they did not assess the risk of each loan, they did not analyse the concentration of loans in a sector or industry, leading to excessive concentration of loans in the field of land development.

He expressed the view that the persons of previous administrations that were responsible for the mismanagement should be apologizing before the courts or the legal service.

He noted that the idea of separation is based on modern practices in relation to banking issues.

“Already, much effort has been made internationally to separate commercial banks from the investment ones, as the general terminology is,” he added.

Bank of Cyprus is one of the largest creditors in land development, and according to Pimco, around €0.8 billion or 25% of the loans injected in this sector could become problematic.

Asked to comment on whether the idea of separation is of the transitional Board of Bank of Cyprus or the Central Bank, Mr Michaelides explained that “the transitional Board has as a general mandate to restructure the organization and the Restructuring Committee headed by interim CEO Christos Sorotos – and we concluded that an excellent way to move the bank to consolidation was this separation.”

He clarified that the separation of bank in commercial and real estate is still in its early stages and has many aspects, which should be studied in detail in relation to the provisions of the banking law, in accordance with the instructions of the European Central Bank, based on the rights of the new shareholders and the tax implications for investors.

“There is consensus between the government, the Central Bank and the Bank of Cyprus to move forward with the study and that’s what we will do.”

He said that two meetings were made with the troika about the issue last Saturday and expressed the view that this practice will be adopted as it is one-way.

He explained that, basically, loans of about 50 land developers, which are currently non-performing, will be transferred to the new bank.

Mr Michaelides, in an effort to dispel initial reactions and concerns by households, ensured that this class of people has nothing to fear as these, he said, belong to the core banking operations.

“On the other hand,” he added, “we care about the average customer. Already, whoever has a problem is coming to us to negotiate his loan so as to be relieved temporarily.”

On the question when the bank will leave the resolution regime, Mr Michaelides said on July 31.

The shares will be distributed to private shareholders and a general meeting of shareholders will be held to elect the new Board of Directors.

Developers are the problem says bank chairman

Readers' comments

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  • andyp says:

    POT
    KETTLE
    BLACK

    Just three words that spring to mind.

  • Gavin Jones says:

    They’re ALL a “problem: developers, banks and lawyers.

    Ultimately, successive governments have been the biggest “problem” as they’ve allowed the rotten state of affairs to thrive and prosper.

  • Spirit of Odd Job Bob says:

    Question: “Why did the Bank of Cyprus not put in place a procedure whereby any homebuyer would automatically repay a portion of the developers loan”

    Answer: Because it’s stupid, morally reprehensible and plain wrong. Pippa says “Why should I?” and she’s totally correct.

    Andrew has though inadvertently hit the whole thing bang on the head and suggested what many saw as being one of the inevitable final (not quite the end game) gambits. This whole crazy idea of the robbed, frightened of losing their homes completely, paying off all the associated debts of the developers (IPT, planning infringements etc) is now being turned into the suggestion that, to help out the banks, the robbed now pay off the loans of the robber barons as well!

    And, I’m afraid, it’ll work with some (even though the debts will NEVER be paid as they really are quite humongous!)

    Another question is asked: “Did any of these highly-paid Directors and Executives, BoC and Laiki, ever study the rudiments of prudent banking practice?”

    I’m afraid again, the answer is, “Of COURSE they did!” I know some of these guys. In general, they went to the same universities, have the same qualifications and KNOW what a decent loan is and how to service it compared to a pile of poo.

    Which leads onto the third question: Why did educated, intelligent bankers lend to developers amounts of money that massively dwarfed the collateral (in somebody else’s name), never collect any interest, hide the loans as much as they could, never face any sanction (apart from, as suggested above, having to “apologise”!), then try (and will be successful at, I betcha) to get the developers’ loans shifted (with no developer ever likely to see the inside of a court building), as Andrew suggests, onto the backs of the very people who’ve been wronged in the first place,?

    Oh why indeed….

    DO NOT PAY ANYTHING that you do not directly owe. Anything at all. If you do owe something (like you’ve taken out a mortgage on your property), you’ve got no choice other than to as they will go after your other EU assets.

    This whole thing is a LENDING scam and we are the intended and ultimate can holders.

  • Richard says:

    “Surely it has got to be someone else’s fault, doesn’t it?”

    Many a true word spoken in (albeit sarcastic) jest Mike. You’ve hit the nail on the head!

    Throughout humanity – the only time really awful crises were solved properly – was when ALL of the people who helped create the crisis got together as both a culpable and willing unit to resolve the issues and take the right actions.

    In the last five years – I’ve witnessed in our case:

    1) The lawyers blame the brokers
    2) The brokers blame the banks
    3) The government blame the clients
    4) The banks blame the developers and the brokers
    5) The clients blame the lawyers & the banks ….

    and much more…..

    The brokers oversold (and mis-sold) the opportunity. The banks hedged the currencies on the loans and took reckless lending risks. The lawyers didn’t act in the interests of the clients. The developers cut a lot of corners and were greedy. The government turned a blind eye to it all.

    We are all where we are folks – and it needs resolving. I’m no longer interested in apportioning blame here and there – the whole thing was a corrupt crock.

    I’m for connecting with people who are interested in long-term resolutions underpinned by justice-based actions.

  • Mike says:

    You will forgive me if I don’t hold my breath for any positive action to start. I am however really looking forward to the choice of adjectives and phrases that will be used to try and make this sound like a foreign conspiracy forcing an attack on the Banks in Cyprus.

    Surely it has got to be someone else’s fault, doesn’t it?

  • Martyn says:

    Did any of these highly-paid Directors and Executives, BoC and Laiki, ever study the rudiments of prudent banking practice? Clearly not otherwise the unholy Mess that is now, at last, being identified, would never have happened. It seems like just about everyone relied on land and property values simply increasing for ever, no risk assessments were made, no clear loan repayment arrangements were, it seems, ever made, even – we learn now – interest payments were either waived or simply overlooked or ‘forgotten’. Mr Michaelides stopped short, of actually blaming the land developers but clearly, it seems a massive network of matey, cosy networks – banking, legal, and property development – existed. At the root of all this, no-one seems to have addressed, even mentioned!, the scandalous Legal and Title Deeds aspects that were clearly being used to ‘facilitate’ all this.

    Acting Chairman, Mr. Michaelides ‘expressed the view that the persons of previous administrations that were responsible for the mismanagement should be apologizing before the courts or the legal service’.

    APOLOGIZING! Now there’s an enterprising and chummy way of punishing those who have been largely responsible for the current Shambles. They will likely ‘stand-down’, take early-retirement and or redundancy – and no doubt demand sizeable severance packages, including Pensions! (where will all this be funded from?) that will further dilute the poor Depositors funds. There’s no mention of Regulators, where were THEY? – or weren’t there any? “We care about the average customer” says Mr M : well Loan customers anyway it seems, clearly those with Deposits over €100k can’t be ‘average’, they are going to be blessed with Shares, it seems, in a ‘new’ bank which may one day, they hope, create some compensatory Value!

  • Pippa says:

    Andrew – Why should I, having paid the developer in full at the agreed price for my house, pay to a bank any money they lent to my developer? It is not my fault they negligently lent him the money without ensuring that he had the ability to repay it.

    I do not have a mortgage, I also do not have the money to pay my developers debts, so where does that leave me? Any bank is a civilised country would first seize the assets of the debtor first, but hey this is Cyprus!

  • Andrew says:

    Why did the Bank of Cyprus not put in place a procedure whereby any homebuyer would automatically repay a portion of the developers loan and then receive a waiver from the Bank in return.

    That way the bank would be having their loans serviced and the homebuyers would have been protected.

    The Bank of Cyprus is guilty of gross negligence and systemic malpractice.

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