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.