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Possible ‘Development Bank’ to manage NPLs

The Bank of Cyprus Board of Directors is expected to decide today whether to establish a “development bank” to deal with the problems of non-performing loans according to state broadcaster CyBC.

THE Bank of Cyprus has been reported to be on the verge of setting up a separate ‘development bank’ to deal with mortgaged properties.

State broadcaster CyBC reports that the proposal is expected to be discussed at a meeting today after board members have been briefed on a report prepared by a specialist from HSBC.

Following a meeting between himself, CEO John Hourican and members of the board with President Anastasiades, the Bank of Cyprus Chairman, Christis Hassapis, said that move was not designed to split the bank into a ‘good’ and a ‘bad’ bank

The meeting at the Presidential Palace was also attended by the Finance Minister Harris Georgiades. He said that the aim was to set up a new bank to deal with property development, adding that a 500 strong team of technocrats led by Euan Hamilton, former Deputy Chief  Executive of Royal Bank of Scotland, had already been established to handle non-performing loans (NPLs) amounting to several billion Euros.

Gold News reports that CEO John Hourican advised journalists that that he had not experienced any political pressure on the issue of NPLs.

According to Gold News, Hourican told journalists “I think is really important that you understand that we are dealing with every borrower in a very specific and deliberate way, to recover the bank`s position and to ensure that we treat them fairly.”

There’s a consideration in a professional way by the board of the bank of the various options that are available to us and this is a matter of discussion and debate and we have not concluded on what we are need to do but we are looking at all options as you would expect us to do.”

We have stabilized the asset quality of the bank during the last six months and it is our job to explore all options to try and accelerate the progression of the bank against its recovery plan. We are running ahead of our recovery plan today and it is our job to try and accelerate that journey to ensure that we contribute to the recovery of Cyprus.”

Readers' comments

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  • @Gary Petrie – I’m not a lawyer and I have no legal training – but in my opinion (as a man on the Clapham Omnibus) I would say you would be better off suing the state for its failure to provide adequate consumer protection.

  • Gary Petrie says:

    Nigel, I know you are correct in what you are saying but in terms of the home loan… my understanding at the time of my contract (I am more enlightened now) was that was I paying to have a house constructed on a defined plot of land. It wasn’t just about construction.. that was my plot. To then be told that the bank owns not only my plot but all the land for the development as the developer has defaulted on his debt is where this all breaks down and I think there are real grounds (ignore the pun) for a legal challenge. My contract of sale clearly defines my plot. Here’s my question.. if someone won a legal challenge and wanted to fully withdraw from their contract (and we know the developer has gone) could the banks be liable for full compensation?

  • Janner says:

    @Nigel. I know. It was an attempt are sarcasm! My point is that this not made clear. Has this been challenged at the EU High Court of Justice? Has anyone, with or without a home loan, actually taken their case to the high court?

  • @Margin – do not waste your time phoning the bank – go to see them and find out what’s happening in person.

    BTW you do not ‘buy your deeds’ – you pay Property Transfer Fees (a government tax) to secure ownership of the property.

  • @Janner – You do not have a mortgage – you have a ‘home loan’. In the USA this is known as a ‘home construction loan’ and is is a loan used to finance the building of a home – or any other type of construction.

    Unlike the UK, where developers find the purchase of land and the construction costs of the properties from their own resources, in Cyprus they do not.

    The ‘home loan’ you have is used to pay the developer for the construction of the property – i.e. he is using your money to do this, not his own.

    Your ‘home loan’ will be converted to a mortgage when the deed to the property you have purchased is registered in your name, which can then be used as collateral against the sum advanced.

  • Janner says:

    @Gary. You’re right. I refuse to pay my mortgage until the title is issued and I know that I’m paying for something that legally exists and that one day, by paying off my mortgage, I will own it. That is the layman’s understanding of the process and how it works in a modern country. The EU is modern isn’t it?

  • Margin says:

    We are in Cyprus especially to buy our deeds, our developer has known for 6 months that we are coming out. We had a meeting on Friday and said he is waiting for the Bank of Cyprus. Is this because they are using our deeds as security, we go back this Friday and they were supposed to contact us today but aren’t answering any calls, what can we do?

  • Gary Petrie says:

    The only way to treat every borrower fairly is to expect the borrower to repay their own debt and no-one else’s. It really is that simple. If your process allowed the same asset to be used as collateral against two loans, both loans granted by your bank, then accept you did not properly assess and manage the risk. You take the hit not the innocent purchaser who has paid, or continues to pay, their loan in full as per the agreement signed with your bank in complete good faith. Write off the debt where you have failed and free the way for the proper and rightful issuing of Title Deeds.

  • MollieMoo says:

    Exactly!! What about us waiting on a knife’s edge to know whether we have lost all prospect of ever getting clear TD’s as we were promised because of a rogue developer’s scamming actions?

    Trapped in Paradise? No, trapped in Hell with no immediate prospect of being able to move, sell, leave my only asset to my children etc. etc. Or maybe losing my home, or maybe having to pay the Bank sums of money I don’t have for something I already bought.

    I feel imprisoned, unable to move forward in life with a very dark cloud hanging over me all the time. Nearing 70 and living alone, I could well do without all this stress.

  • Denton Mackrell says:

    Sorry Mr Hourican, but dressing up this new bank entity as a ‘development bank’ makes you look very slippery! Surely you haven’t ‘gone native’ after such a short time in Cyprus? It’s a BAD BANK in everyone else’s language.

    And just look at the last three paragraphs quoted to you: Trying to be fair to each and every borrower may well be the ideal ethical position but that assumes that each and every borrower has been acting above board. Your bank got itself into its current parlous state precisely because some borrowers refused and continue to refuse to repay their borrowing debts. BoC allowed and encouraged big developers to carry on with their fool’s paradise and, unsurprisingly, BoC now has a colossal NPL mountain to clear.

    The citizenry are expecting you to show some backbone and reign in the developer debtors once and for all. If you fail to make an example or two of the major debtors by repossession and liquidation, then de facto you are colluding with them. Pretending somehow that their NPL debts can be airbrushed away by simply putting them into a BoC Bad Bank (your so-called ‘development bank) is fanciful. BoC cannot fully recover unless and until this cancer is cut out. A second financial crisis for BoC is thus looming. Ruination beckons. Surely you and your Russian fellow directors are tough enough to stand up to chairman Hassapis and his developer chums!

  • andyp says:

    And what about the securities BOC hold over sold properties that buyers never knew existed John?

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