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NPLs of 22 developers highlighted by Troika

Troika calls for the non-performing loans of the top 22 corporates and real estate developers to be dealt with by “Special Projects Division” within the Bank of Cyprus to get them performing again – or seize collateral.

THE EUROPEAN Commission’s second review of the Economic adjustment programme for Cyprus is generally favourable to the progress being made by Cyprus.

In summary, the ECs report concludes that:

  • The Cyprus programme is on track.
  • The economic situation remains difficult, although so far the recession has been less pronounced than expected.
  • The authorities have made important strides with the recapitalisation and restructuring of the financial sector.
  • Fiscal performance has remained strong.
  • Structural reforms are advancing, although delays and partial compliance were observed in a number of cases.

However, the report highlights that the Bank of Cyprus needs to take steps to continue to strengthen its balance sheet, reduce ELA (emergency liquidity assistance), and manage non-performing loans more effectively.

Although the Troika’s report does not mention specific names, it calls on the Bank of Cyprus to create two separate units – one for ‘normal’ NPLs and a ‘Special Projects Division’ for the top 22 corporates and real estate developers and that with a focussed approach attempts will be made to make the top 22 NPLs start performing again – or that action may be taken to seize collateral.

Bank of Cyprus

According to media reports John Hourican, the Bank of Cyprus CEO, has already sent stern messages to the bank’s large debtors, some of whom have already had ‘uncomfortable’ meetings with Mr Hourican.

Mr Hourican has also announced plans to establish a department within the Bank’s recoveries and restructuring section under the direction of Euan Hamilton that will deal with problem loans. The department will be headed up by a person with experience of negotiating the purchase and sale of property.

The department will comprise six units, one of which will focus on customers who owe the bank more than €100 million.

Further reading

European Economy Occasional Paper 169 – The Economic Adjustment Programme for Cyprus Second Review – Autumn 2013 (December 2013)

Readers' comments

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  • Mike says:

    The only people who will suffer here are, as always, those at the bottom of the food chain. I guess the major culprits were attempting to emulate the UK model in that if they owed enough they would be considered too big to be permitted to fail viz-a-viz RBS, Lloyds etc. Someone else will then bail them out.

  • Gavin Jones says:

    Martyn.

    I second your recommendation that people should take a look at the Daily Telegraph link that you’ve posted.

    The comment by ‘Frustrated’ sums up the dire situation faced by many in Cyprus.

    Comments posted by people based in the U.K. betray their lack of comprehension as to what goes on in Cyprus vis-a-vis hidden developer mortgages and think that Cyprus is in the doldrums solely because of the Euro.

    I suppose ignorance is bliss. They naturally assume that the withholding of title deeds on account of being used to guarantee developer loans can’t possibly be allowed in a ‘civilized’, supposedly Western country. Quite.

  • John Rose says:

    ‘although so far the recession has been less pronounced than expected’.

    Tell this to people with no income from the welfare fund which the Troika suspended at the end of October as per the MOU.

  • Stuart says:

    Clive has put his finger on the key issue here. The embarrassment for the EU to loose any member state, however small, is too much to even contemplate.

    How desperate they were not to loose Greece by continually extending the deadlines and topping up the bail-outs when the money kept running out is a clear indication that much of the exercise is window-dressing to maintain the appearance that everything is under control when it isn’t.

    Clive’s predictions are probably the most accurate assessment of the Cyprus situation that has been expressed in these columns so far. Let’s not forget that the EU auditors have refused to sign off the EU’s accounts for the last 19 years due to fraud and corruption!

  • Clive says:

    The developers and others involved in this awful situation have had plenty of time to work out a plan to avoid criminal prosecutions and/or seizure of assets to pay off their NPL’s.

    1. Their money is already tucked away out of the reach of the any authorities, in other names.

    2. They will declare themselves bankrupt. The relevant paperwork is probably lodged ready to be acted upon.

    3. As the developers/lawyers are the masters of this island, and know where all the bodies are, they will force the Cyprus goverment to apply, just apply, to leave the eurozone. The last thing the EU Commissioners want is a country to leave the euro just went there are going to be elections in May next year, so the Troika will be told to back off.

    4. The Cyprus banks will be forced to set up good and bad banks and hide the NPL’s in the bad bank until the oil/gas money arrives sometime in the future.

    5. The Govt. will probably now go ahead with the previous plan to issue various types of TD’s notating any loans held against them or structural faults, to get round the Troika’s requirements to issue TD’s.

    Sorry folks that’s how I see it may go.

  • Martyn says:

    Before any one gets ‘carried away’ at the mention of a ‘generally favourable’ EC recent Report on Cyprus, I recommend they take a look at an article in Daily Telegraph on 23rd December where the IMF, a key member of the Troika, are sounding dire warnings about the general LACK of progress by Cyprus to meet the imposed Austerity/Recovery measures.

    The following link should take you to it

    http://www.telegraph.co.uk/finance/financialcrisis/10536280/IMF-says-Cyprus-support-for-Troika-austerity-sputtering-as-slump-drags-on.html

    for those able also to read the 30+ Comments below the article (none of which are by me) there are, in my opinion, some very stark descriptions as to how the country has gotten into such ‘dire straits’ and how the whole Recovery process may well stall etc etc etc

    Merry Christmas!

  • @Denton Mackrell – and perhaps a few sacred cows going to the slaughterhouse.

  • Denton Mackrell says:

    At last! Is that chickens I hear coming home to roost?

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