CYPRUS 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.