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Cyprus tops bad property loans chart

KPMG’s Property Lending Barometer 2015 reports that Cyprus has the highest proportion of impaired real estate loans with 70% of impaired loans (59% serious and 11% minor impairment).

Cyprus tops bad property loans chartCYPRUS is in the worst position among countries in Europe as regards impaired real estate loans, according to KPMG’s Property Lending Barometer 2015, released yesterday.

According to the report, the global economic crisis had a serious impact on the financing of the real estate sector. During the years of the crisis the proportion of impaired real estate loans were increasing in Europe.

The highest proportion of impaired real estate loans among European economies included in the survey was recorded in Cyprus with 70%. A percentage of 59% corresponds to serious impairments and 11% to minor impairments. Only 30% of real estate loans were fully compliant in Cyprus.

Banks in Croatia and Serbia also have a high proportion of impaired loans with 64% and 55% respectively.

In contrast, the highest rate of fully compliant real estate loans is recorded in Sweden (99%), the Czech Republic (98%), in Germany (94%) and the Baltic region (Estonia, Lithuania, Latvia) (90%).

The report notes that banks in the less established markets, which include Cyprus, are still facing difficulties caused by the sizeable proportion of non-performing loans in their loan portfolios. However, it is added that the banks have different options when dealing with these loans, such as restructuring, foreclosing or selling these non-performing loan (NPL) portfolios.

The majority of the bank representatives interviewed for this survey still think that through restructuring they can successfully manage the majority of their impaired real estate loans.

On average, banks indicated that approximately 60% of their impaired loans may be managed through restructuring. The answers suggest that rescheduling or restructuring of loans is still a preferred approach by banks to manage problematic loans.

In Cyprus, banks think that 58% of problematic loans may be managed successfully through restructuring. The corresponding percentage for Greece is 68%.

Banks in less established economies are more inclined to dispose of part of their loan portfolios, as on average almost 60% of the banks in these markets indicated their willingness to do so.

All of the surveyed banks in Greece, Cyprus and Croatia stated that they are considering selling part of their commercial loan portfolios in the next 12-18 months.

Criteria for successful restructuring

The survey also identifies the most important criteria in terms of successful restructuring. Overall, banks’ answers remained consistent with those of last year.

The primary precondition for any restructuring is co-operative behaviour on the part of the borrower.

If banks see that there is appropriate cooperation from the borrower then they consider the business model and the quality of the asset as the most important criteria when it comes to restructuring.

The availability of additional equity remained the third most important factor during a restructuring.

Similarly to last year, the availability of additional collateral and the opportunity to increase the bank’s margins were the least important for banks.

The answers show that banks have similar views on the criteria for successful restructuring regardless of the size and risk profile of the market in which they operate.

As noted in the report, the survey aims to provide an analytical overview of the current approach of banks to real estate financing in Europe.

The data for the survey was primarily collected through in-depth interviews with bank representatives and via online questionnaires.

Depending on the organisational structure, interviewees were the heads of real estate, project financing or risk management departments.

Banks were selected from among the leading financial institutions operating in each individual country. The survey participants included over 90 banks, all of which were active in the real estate market in Europe over the last year.

Data collection for this survey took place during the period May-July 2015.

Further reading

KPMG’s Property Lending Barometer 2015

Readers' comments

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  • Mike says:

    No surprise there then. The commentators below have really said it all so lets hope some of the greedy bankers are held to account and more importantly punished.

    (Editor’s comment: I visited Iceland in the summer and on one of our trips we drove past the jail where the bankers were imprisoned.)

  • Martyn says:

    Well said Peter “They don’t see it AND they don’t listen”

  • Tearing my hair out says:

    Can’t really add much to what Pils said below except to call out this quote from the report:

    “The primary precondition for any restructuring is co-operative behaviour on the part of the borrower.”

    The problem does NOT lie with a lot of the borrowers. Borrowers like me have bent over backwards till our spines are in traction trying to come up with something that both borrower and bank will agree to. After years of back & forth dialogue, meetings, forms, requests, investments made to keep property usable et al – when you get a re-structured loan it’s virtually as impossible to meet the demands of it as the old loans you bank originally gave you.

    The problem is the BANKS. The end.

    I don’t want any more stupid surveys and Government spin doctors, assorted ‘pundits’ and silly charts.

    Perhaps now that Iceland have jailed over 20 of their senior bankers for assorted fraud and embezzlement charges – banging them up for 74 years between them – it’s time the Troika leaned VERY hard on Cyprus to do the same. When a few of the senior brass in banks start slopping out in Cypriot prisons – maybe – just maybe then – the banks will start to see sense.

    Stop treating them with kid gloves and start punching them with an iron fist. Enough really IS enough.

  • Steve R says:

    The antiquated system which involves banks, solicitors, district offices, planning offices, building control and a whole host of other bodies just isn’t working. It needs a complete overhaul.

    How can a bank lend 70% of the value of a property and then lend a further large amount to the developer without even checking if the properties had even been built.

    On my site the developer set the valuation of each unit. He was advanced a further amount to fund the next project without finishing the first site. There was never a visit to site from the bank.

    My mortgage loan was put into a pot and released on my approval. The bank didn’t even check if the property was at the stage I said it was at. I could have used that money for anything. Crazy system.

  • Pils says:

    Re-structuring of Cyprus loans is only successful by means of co-operation of the banks in a proper and sensible manner with a level headed mentality to help people with all forms of mortgages in Cyprus.

    This unfortunately has not happened with most Cyprus banks burying their heads in the sand, and trying to justify by greed, favourable terms to meet their own arrogant conditions.

    Progress of re-structuring mortgage loans has ceased and many people with Swiss franc mortgages are not paying their loan obligations to the banks.

    This is why Cyprus tops the bad property loan chart.

  • Peter Davis says:

    They thought they were being so clever ‘stuffing’ the goose who bailed out the country, but now the British buyers no longer come. And still they don’t see it.

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