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Bank of Cyprus furious over leaked debtors list

The publication of an internal report by the Corporate Banking Division of the Bank of Cyprus dated 14th June 2013 listing details of the bank’s largest debtors has infuriated the bank.

Bank-of-Cyprus-HQA CONFIDENTIAL list with the 24 largest debtors in the Bank of Cyprus and the amounts they owe, including the bank’s analysis of their financial status and recommendations for further action, was leaked to the news site Stockwatch yesterday, infuriating the bank that said it would take legal measures.

The release has fuelled even further the controversy surrounding the collapse last year of the second biggest lender, Laiki Popular Bank, and its takeover by BoC, where, too, reports of extravagant and unsecured lending by management and board members have been revealed by several public inquiries, making the issue of recovery more difficult.

The BoC has been struggling with increasing amounts of non-performing loans (NPLs), which have been reported to approach 50 per cent of its loan portfolio and put tremendous pressure on the bank to write them off as provisions in its books, a development that would incur significant losses to the already troubled lender. However, commentators have repeatedly argued that a small number of borrowers – who have been facing difficulty servicing their loans – were responsible for a large chunk of the unserviced debt, and effectively dealing with them would go a long way towards restoring the bank’s liquidity position and alleviating the risk of sustaining further losses.

According to the list, drafted a year ago, the 24 problematic borrowers owed the bank close to €5bn as at June 2013, including account overdrafts, collateral margins and NPLs. This totals to just under a third of Cyprus’ GDP.

Lanitis E.C. Holdings Ltd appeared on the list as the bank’s largest debtor, with total obligations of €576m. According to the report, the group’s loans were “frequently adjusted” and since 2006 “only interest was being paid.”

“The bank’s board decided on March 8, 2013, to grant €13.65m to cover interest due for 2012 and 2013,” the report noted.

But despite the group’s high borrowing and the servicing problems since 2006, further loans of €133m were granted in 2011 to fund the company’s participation in developing the Limassol Marina.

A similar predicament was described for Leptos Group, another developing company that was recorded as owing the bank a total €510m last June. In this case, though the bank was exposed to significant risks with regard to Leptos Group, it nonetheless extended new credits of €162m in 2010 to fund the Neapolis Project, a 1-million square metre housing and commercial development project on the outskirts of Paphos.

NKS Shacolas Holdings Ltd, main shareholders of CTC Ltd which controls companies like Woolworth Cyprus, Ermes Department Stores and CTC Automotive, with a significant stake in Hermes Airports, were recorded as owing the bank a total €315m. Back in June, the bank’s report expected that the group’s dues would be settled by the sale of its stake in MTN, which was announced in February 2013.

Dolphin Capital Investors was another of the Bank of Cyprus’ large debtors with a total €300m. Last May, Dolphin announced the sale of the Venus Rock development project for €290m, which has not yet been completed.

The remaining debtors listed in the BoC report were:

Joannou & Paraskevaides Group with total dues €310m,
Limassol Marina Ltd with €138m,
Louis Group with €217m,
Libra Group with €134m,
G. Paraskevaides Group with €110m,
Quality Group with €172m,
Galatariotis Group with €100m,
K. Athienitis Contractors & Developers with €193m,
Constantinos Shacolas Group with €185m,
Hassapis Group with €212m,
Frangoudes & Stephanou Group with €169m,
SFS Group Public Co Ltd with €147m,
Lefkaritis Group with €118m,
Panayides-Farmakas Group with €102m,
Tsokkos Hotels Group with €172m,
Aqua Sol Group with €199m,
D. Zavos Group with €134m,
Piitarides (Fairways) Group with €100m,
ELPE/Latsis with €200m.

In a statement issued yesterday, the Bank of Cyprus lambasted Stockwatch for publicising confidential information relating to its clients, in contravention of banking confidentiality and warned that it would seek out those responsible for the leaked report.

“The bank affirms that it has taken all due measures to investigate the issue and punish those responsible,” the statement said. “Among these, the bank has instructed the internal audit service to investigate this matter, and is determined to bring those responsible to the competent authorities.”

Bank of Cyprus

Editor’s comment

In the Greek language section of its website Stockwatch stated that the publication of the Bank of Cyprus report “served the public interest” and that it contains “information which may require further investigation”, noting that “in many cases the loan balances have increased.”

Further reading

Download the 77 page Bank of Cyprus report (please note that the report is 35Mb and may take a few minutes to download and is mainly in Greek).

Readers' comments

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  • Mike says:

    A similar predicament was described for Leptos Group, another developing company that was recorded as owing the bank a total €510m last June. In this case, though the bank was exposed to significant risks with regard to Leptos Group, it nonetheless extended new credits of €162m in 2010 to fund the Neapolis Project, a 1-million square metre housing and commercial development project on the outskirts of Paphos.

    Its only a small part of bad stories. The big business was/is socially irresponsible, resisting any big innovation in the construction industry, which could skyrocket Cyprus to the top.

    The Leptos Group and its chairman done the worst to arrest the national scaling up of the smart development concepts conceived for Neapolis by the i-city consultancy.

    1. The Smart Eco Island: i-Cyprus 2020:
    2. New Cyprus,
    3. Future Cyprus 2020:

  • Richard says:

    Whistle-blowers should be given asylum and witness protection! They are the only ones in the Cyprus banking system with any shred of decency!

    What’s the betting that the directors of the companies on that list will:

    1) Have put full protection in place for their own assets?
    2) Never settle their debts?
    3) Never face prosecution?

    If Cyprus “is more like Africa or Middle-East” in it’s dealings – why is it still in the European Union? Oh yes – that’s right – silly me – it’s an ideal place to put an energy terminal – so we don’t want to upset the apple cart!

    I do wonder how long it will be before there is civil unrest. Blatant corruption is now at a level before wars of independence were initiated.

  • MartynG says:

    ‘BoC’ which includes the absorbed Laikibank, is getting what it deserves*, whoever is the Whistleblower is to be thanked, congratulated, rewarded even, the revelations reflecting extremely bad banking practice, as many of us suspected, going back, probably a decade or two, likely more. Reflections on an altogether too ‘chummy’ culture that has certainly led to the awful NPL problems that will take years to ‘address’ and then be dealt with.

    * One sad effect though looks like being that the Cypriot nation, primarily the remaining ‘good’ or ‘OK’ bank customers – and the ‘ordinary RoC citizens’, the taxpayers, are more than likely to have to, one way or another, ‘pick up the tabs’ for all this profligacy, tolerated, nay it seems encouraged, by those professionals – bankers, lawyers, regulators, company directors who ought to have known better. No wonder the current BoC CEO is worried and will, if he can stand the pressure and politics, need to prevail and go the’Bad Bank’ route.

    The rabbits are now well and truly out of the proverbial hat. I’m with JM below, the days of reckoning are upon us. The unravelling must now commence, stark realities must be faced. The momentum for deep-seated radical change is becoming unstoppable.

    Do we have a Government willing to ‘grasp the nettles’: Culturally I very much doubt it. We shall see.

  • Pete says:

    I might have some sympathy for the BOC if, instead of moaning about a leaked document, they’d adhered to the repayment plan of the various loans instead of allowing them to spiral completely out of control. And let’s not forget that many of these loans would never have been granted if it weren’t for ‘the old pals act’ therefore the BOC has no one to blame but themselves but, like many of their colleagues, they want someone else to pay for their own arrogance, stupidity and greed.

    One bank in particular failed to pursue a developer for any repayments of the various loans but when said developer approached another bank, the original lender gave him a clean bill of health thus allowing further loans to be granted, none of which were ever repaid.

    One lives in hope that Troika might insist on their own investigating team but I feel in Cyprus, that could be a move that might last someone their entire working life.

    And then some !!

  • Peter Davis says:

    Worth reading an EU report on Director liabilities dated April 2013.

    The Executive summary outlines the liability of executive & non-executive directors in companies based on specific duties. The limits of management behavior and … “It provides stakeholders and third parties dealing with the company with legislative protection against management misconduct.

    Also Directors liability in respect of their duties in all 27 EU Member States and Croatia.

    Page 84 “A duty owed to creditors – Not to trade in the vicinity of insolvency” (as according to English case law)

    Page 106 ” tort of negligence” applies (adopted from English law)

    Page 110 personal liability of Directors. The law of Cyprus does not specify the required level of skill and care; it has been held that if a director acts in good faith he or she cannot be held responsible to pay damages, unless guilty of grossly culpable negligence in a business sense. The Cypriot courts use the interpretation of the duty of skill and care by referring to the common law approach in the case of City Equitable Fire Assurance Co. [1925] Ch 407

    Page 241 Do the Directors duties change when the company approaches insolvency? The answer is yes in Cyprus.

    Page 303 a Hypercritical duty of care for a company trading in real estate property.

    The report completed by the LSE was funded by the EU

    Contributors included four legal members from Cyprus

  • Restructurings says:

    Finally, the truth comes out. The next thing that will happen is BOC will try to reaffirm the value of the assets behind the loans. Then, after nobody believes them on that, they will hire an outside advisor to market the loans, and when they are offered pennies on the dollar, they will put them into a bad bank. Of course, by then they will have spent millions of dollars on professionals. So why not just sell them now. BOC is toast!!!!!

  • John M says:

    I think the new (Russian) board of BoC is responsible for the leak. I don’t think the Russian directors are too happy that BoC and the Troika took €8 billion of their money to write off huge numbers of NPLs, mainly for Banker cronies and Party Political cronies. This leak is to put pressure on the big names in Cyprus business to pay off their loans.

    All the companies need to do is drop the asking prices of their assets (Limassol Marina, various hotels and resorts) and sell them at market price (25% discount from asking price). They will be easy to sell and this will supply liquidity to the Bank of Cyprus.

    Until 2013, the BoC board consisted of cronies. They thought they were “too big to fail”. So the “Big Names” and their Banker and Politician cronies treated BoC and Laiki like cash machines. The new Russian owners of BoC are playing hardball with the debtors. This “unauthorised” leak will do massive damage to the reputations and sales of the “Big Names”. The Cypriot millionaires’ club will need to drop the prices of their assets and sell off huge amounts of stock before the BoC forces them under. The Party is finally over. About time, too. Unlike Europeans, Russians don’t mess around.

  • Steve says:

    There is a common thread running through the postings on this subject that indicates most people expect the Cypriot authorities to behave like UK and other Northern Hemisphere officials would. Cyprus is closer to Sicily, Africa and the Arab countries and behaves more like they behave, in particular chasing the whistle-blowers who have embarrassed them by telling the truth rather than going after the perpetrators who expect, even demand, to be protected by the system.

  • jjames says:

    I sincerely hope that the regular commentators on this site and those in the Cyprus Mail who, more often than not, speak with objectivity and great insight, also convey their feelings directly to the appropriate individuals and organisations that make up the EC and the Troika.

    If that is the case, coupled with Nigel’s recent meeting with representatives of the Troika and continued and accelerated exposing of the guilty parties (never mind “huffing and puffing” in search of the courageous whistle-blowers) then surely, even in Cyprus, something has to give?!

  • Janner says:

    I’ve always believed there was a case for mis-selling loans and seeing this it just confirms it. Surely a bank who has granted a housing loan to a purchaser knowing that the developer is in serious financial difficulties has a responsibility to the purchaser? If not illegal it is an incredibly stupid thing to do!

  • Hector says:

    It appears to me that BOC is using the ‘attack is the best form of defence’ tactic.

    It is not the bank that should be lambasting the leak, they should be hanging their head in shame. They have been pouring good money after bad. The EU, ROC government, bank share holders and the people of ROC should be demanding an investigation into the people and processes that allowed this situation to have happened. Where is the oversight into the banks and their lending practices?

  • Deanna says:

    Unbelievable that the bank lends more millions when present loans are in default!

    It’s good that the list was leaked and just tough if the BoC members are embarrassed.

  • M Hannah says:

    “HOORAY” for the Whistle Blowers. Instead of SEEKING OUT the Perpetrators who leaked all this (which we all know anyway) They should be seeking out the Crooks who have caused the problem in the first place and why are They still Lending these Crooks Money.

    Good Heavens. Come on Bank of Cyprus, and The Government of Cyprus, get a Grip, and put These Crooks in Prison and Confiscate their Assets, so we can all pull together and Rescue Cyprus.

  • Adrian says:

    It is about time that the people that brought this economy to its knees are named and shamed.These people stand up and spout all their platitudes about what the economy needs to recover and all along they are hiding behind the fact that they are the problem .

    The senior managers did not want the information revealed because it would would show that they were as incompetent (or corrupt) as the people they gave the money to without due diligence.

    Let us hope that the auditors are as diligent in catching the criminals within the bank and do not waste time chasing the whistle blowers who have done a service to the public and broken this ring of secrecy that these businessmen depend on.

  • Ivan says:

    I think the bank resources might be better used to bring those who caused the problem to the ‘competent authorities’…wherever they may be.

    I would guess that a number of these serious debtors would manage to find some money if faced with foreclosure.

    Forget the Whistle-blower, stop all the talk and take some real action, start recovering money and bringing the real criminals to task.

    More transparency combined with real action would probably be welcomed by the majority of the residents of Cyprus, and it might send out a positive message to the rest of the world.

  • Peter Davis says:

    No such thing as a ‘Debtors list’.

    There is a bad debt provision which moves the debt to ‘written off’ after 90 days on failure to service the outstanding debt. After 90 days the bank starts legal action to recover the debt.

    So is the bank negligent in failing to chase them up? There is an old saying in Credit. “An old debt is a bad debt”. (even applies to blue chip companies).

    Or is it a question of. “Don’t you know this is Cyprus we do things differently here”.

    The banks and Government failed to act correctly.

  • andyp says:

    I guess BOC would be rather annoyed but to be honest I posted many years ago that the banks were hiding in the shadows and the facilitators of our pending doom and as such do not care about their feelings. Too many secrets in Cyprus anyway.

    Respect for the whistle-blower in my opinion.

    This irresponsible lending has been going on, by the looks of things, since 2006. 2006! In my opinion they all expected house buyers/taxpayers to pay at the end of the day. Crooks the lot of them.

    This however is just info from one bank. Multiple loans from multiple banks are not unusual. Keeping feeding a dead dog is simply stupid.

    Which bank is going down the plug hole next?

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