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€12 billion non-performing loans restructured

non-performing loansRESTRUCTURED loans in the Cypriot banking system reached €12 billion in April 2014, corresponding to 27% of total loans in Cyprus, according to figures released by the Association of Cyprus Banks (ACB).

According to an article co-written by Michael Kammas, the ACB’s Director General and senior official Michalis Kronides, total loans in April 2014 amounted to €44 billion of which 48% are considered as non-performing.

The article focuses on loans to corporations of the construction sector and loans to mortgage loans to households.

Loans to the housing sector is the biggest loan category totalling €7.2 billion of which €5 billion are considered as non-performing loans (NPLs), which includes restructured loans which continue to be regarded as NPL, due to a directive issued by the CBC on NPLs, that classifies a restructured loan in the NPL category for at least 6 months.

According to the ACB, restructured loans in the construction sector reached €3 billion representing 43% of the sector’s loan portfolio.

Restructured loans to households for house purchase have registered a much slower pace. From total loans of €5.8 billion of which €2 billion are classified as NPLs, restructured loans reached €1.5 billion representing 26% of total loans granted for house purchases.

Excluded from the international capital markets, Cyprus in March 2013 received a €10 billion bailout from the EU/IMF to cover its financing needs and to avert the collapse of its banking sector, severely hit by the haircut of the Greek sovereign debt and soaring bad loans due to an economic contraction that began in the second half of 2011. However the bailout included an unprecedented conversion of deposits to capital, also known as haircut, to recapitalise the island’s largest lender, Bank of Cyprus, which absorbed part of Cyprus’ second largest bank, Laiki. Cyprus’ lenders, stress that debt restructuring is a major element of the Cypriot programme.

“The above figures show that a significant number of loans have already been restructured despite the fact that a part (of restructured loans) continues to be classified as non-performing due to the CBC’s new directive. Therefore what is needed is patience and a further strengthening of the cooperation between the bank and the borrower and the containment of strategic defaults,” the article notes.

In response to politicians who criticise the banks for insufficient restructuring efforts, the ACB notes that “despite the adverse financial and other conditions the banks have responded to the challenge and proceeded with restructuring of problem loans where the borrower is viable and cooperative.”

Furthermore, Kammas and Kronides highlight the issue concerning the quick pace with which Cyprus has implemented a restructuring directive, compared to other bailed-out countries.

Ireland has implemented a restructuring code two and a half years following its entry to an adjustment programme, whereas Greece implemented a similar code four years after Athens and its lenders signed the country’s bailout. On its part Cyprus implemented the directive of restructuring loans in arrears five months after its entry in the adjustment programme.

– Cyprus News Agency