BANK OF CYPRUS has agreed to sell a small number of restructured non-performing loans of developers and construction companies to a smaller undisclosed lender, a banking source said confirming a report in Politis on Monday.
Bank of Cyprus, the island’s largest lender, which will be the first so test the 2015 legislation that allows the sale of loans to third parties, is already informing borrowers about its intention in accordance to the provision of the law, which gives borrowers the right to buy back their loan, the banking source said.
“The buyer is a small Cypriot bank,” he continued adding that the total amount of loans the bank is intending to sell slightly exceeds €20m.
“They have all been restructured,” the source continued. “If the transaction goes ahead, they will be booked by the buyer as performing”.
The source said that while borrowers and guarantors have the right to buy back their loan, they will still have to pay back the loan to the fullest. The buyer on the other hand will acquire the new debt at the book value.
The completion of this type of transaction which implies a reduction of both the bank’s non-performing loans, seen at €11bn in December, overall loans and provisions, a cash inflow and no book loss as the sale will be completed at the loans’ book value, will unleash resources that can be employed to carry out additional restructurings, Politis reported.
As per legislation, the introduction of which was part of Cyprus’ adjustment programme, borrowers and guarantors have the right to buy a loan after submitting an offer 45 days after the bank’s intention becomes public in the press and the government gazette.
Sounds like magic: sell your NPLs to turn them into ‘performing’ loans… “If the transaction goes ahead, they will be booked by the buyer as performing†and hoodwink the ECB.
Good to know we haven’t forgotten how to think bilaterally…
Ed: It does sound like magic (smoke and mirrors). The loans in question have been rescheduled and the debtors will be maintaining repayments. But they remain classified as non-performing for 12 months after they were rescheduled (assuming the debtor doesn’t default). But to the purchaser they are effectively new loans that are being repaid and which are therefore performing.
@Nigel
When you say you are constantly receiving reports of people receiving deeds, do you get any detail about the circumstances that they are in. eg, outstanding developer mortgages, developer bankrupt, unauthorised works involved etc etc.
Or is it the case that only the more straight forward cases are having deeds issued?
Ed: The two most recent ones involved a developer’s mortgage and unauthorised works – a boundary wall was too high.
Cut and run comes to mind. 20 millions in the bank is better than 50 million promised. Does the existing claims of mis-selling against the BOC get passed on. The last thing that comes to mind is who within the BOC will be responsible for selling these developer mortgages at a massive loss. If I were a shareholder I would want this question answered.
Ed: I can’t see how claims of mis-selling against the Bank of Cyprus could be passed on. Furthermore as these loans have been restructured the borrowers must have accepted the terms of the re-negotiated loans with the Bank of Cyprus.
Perhaps this is a little tester prior to the big sale of ‘bad’ loans to an ‘outsider’ which the small minders would definitely object to.
Ed: The problem with selling the big loans is that whoever buys them could liquidate the assets. That would be disastrous for Cypriots as well as foreigners.
Is this good or bad news for buyers trapped by hidden developer mortgages? So far very few trapped buyers appear to have benefited from the law passed in 2015.
Is the BOC trying to wriggle free of its responsibilities.
Ed: The sale of restructured loans shouldn’t affect trapped buyers. And I’m constantly receiving reports of people getting their deeds.