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John Hourican “annoyed and impatient”

Bank of Cyprus CEO John Hourican said he is annoyed and impatient by borrowers seeing a rising property market and wanting to hold on and negotiate more time to repay their loans.

John Hourican "annoyed and impatient"THE BANK of Cyprus’ CEO John Hourican said that he is beginning to grow impatient with those borrowers who are able to repay their debt but opt not to do so, as the bank, having completed its post crisis shrink-to-strength strategy now wants to grow.

Hourican who was commenting in an interview with the Cyprus News Agency (CNA) on Sunday, said that a minority of borrowers not servicing their loans delay doing so in an attempt to benefit from the property market recovery at a later stage.

“And that does make me impatient and makes me annoyed because we had four years and they should have come to the table and they should be in our offices trying to do a deal with us, not trying to buy more time, not trying sort of time us out in the way the legislation allows it and the courts allow it,” he said, and repeated his latest appeal to Cypriot society not to tolerate strategic defaulters any more. “This country still has a stain on its reputation for the sheer non-payment of loans and the offended parties in the non-payment of loans are the depositors of the bank”.

Bank of Cyprus, the island’s largest lender, pioneered the reduction in non-performing loans by setting up months after the banking and fiscal crisis of 2013 a specialised recovery and restructuring unit. As a result, the lender reduced its non-performing loans stock in June to €9.7 billion or half of its total loan book from over €15 billion in September 2014. Moody’s Investors Service said two years ago that it estimates that up to one in five borrowers in Cyprus may be a strategic defaulter taking advantage of the island’s legislation.

Irish banker John Hourican who joined the bank in late 2013, months after it completed its recapitalisation by converting almost half of the uninsured customer deposits into equity, said that the lender will need years to organically reduce its remaining non-performing loans stock. After initially successfully completing restructuring agreements with major corporate borrowers and with the economy expanding for the third consecutive year, Hourican acknowledged that the remaining cases of small and medium size enterprises and retail customers are more difficult as four in ten restructured loans re-default.

“The stress in households is still real and still in the system,” he said.

According to the Ministry of Finance’s latest forecast, the Cypriot economy, which exited in 2015 a prolonged recession, is expected to expand 3.6 per cent this year after growing 2.8 per cent last year, helping reduce the unemployment rate from around 11 per cent this year to 9.5 per cent next year.

Still, the lender, which increased in August its accumulated provisions to €4.6 billion or 48 per cent of its non-performing loans, is not necessarily considering resorting to the sale of loans to reduce its delinquent loan stock, even as it remains on the table, Hourican added. While it could remove faster bad loans from the bank’s balance sheet, it could not be the right thing for the country and society, he said.

“We posted an additional €500m of our capital against our non-performing loans in order to create the possibility of loan sales because we can protect the bank’s capital more by slowly marching down non-performing loans but that takes a long time,” he said.

“We have to make sure the debt is well serviced, that it is sustainable, that the bank can survive and that there is price taker on the other side,” he remarked. “The sale of non-performing loans is a tool but the sale of non-performing loans is an easy to say word and a very difficult thing to achieve”.

He also said that “ultimately” it was he and the bank’s board of directors who took the decision to increase provisioning levels “because we thought it was the right thing to do given the progress we have made to this date”.

“We posted the additional €500m million in order to create a further option to explore potential trades because they will be more expensive than the natural organic march down and some of that pressure would have come from the European Central Bank no question”.

“It is a decision that I and the Board took because we thought it was the right thing to do given the progress we have made to this date,” he said.

Hourican, known for not mincing his words often and angering Cypriot politicians in the past who expressed fears over the provisions of the law on the sale of loans passed by the parliament less than two years ago as part of Cyprus’s bailout terms, dismissed this type of concerns.

“Words like vulture funds etc. are politically convenient tag names that are used by people who don’t want things to change and actually have to grow up a little bit more,” he said adding that the lender will have to take into account in addition to its social responsibility and the mood of the society, the fact that its depositors were bailed in four years ago.

The bank which generated last year a €64m after tax profit compared to a €438m after tax loss the year before, posted in the first six months of the year a €554m loss, largely caused by the increase in provisions, expects to return next year to profitability.

After having sold most of its non-core business abroad, as part of its shrink-to-strength strategy, the bank seeks to exploit opportunities at home as economic growth is consolidating, Hourican said.

Already, Bank of Cyprus, which in January had its stock listed on the London Stock Exchange, extended €1bn in fresh lending last year and another €845m in the first six months of 2017 alone, he said.

“I would expect that trend to continue and our balance sheet to stop shrinking as we head into 2018,” the former Royal Bank of Scotland executive said.

For now, a figure that currently is on the rise in the bank’s balance sheet is its stock in immovable property – a by-product of debt-to-asset swaps – may continue to rise as Bank of Cyprus will continue on-boarding real estate as part of restructuring agreements, Hourican said.

While their value rose meanwhile to €1.5 billion and the bank’s real estate management unit (REMU) which sold assets worth €155m alone in 2016, almost doubled the amount this year, the bank is considering other possibilities to further speed up the reduction of this type of assets, he said.

“We think there are some really smart solutions we can bring, I am not ready to announce them but we are having a look at further accelerating the reduction of real estate exposures,” Hourican said. “I am not in the business of owning real estate. I am accidentally owning real estate because of the bad behaviour of my borrowers”.

The full interview with John Hourican

Readers' comments

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  • Janice says:

    JH is becoming impatient? – 1000’s have been in limbo for 10+ years, actually much longer in the case of title deeds, and yet still we are hardly any nearer to a resolution. The banks show little or no understanding of the root causes of the NPLs and so they have little chance of the coming to any agreement to resolve – because they simply have no idea, and are totally out of touch, as this article illustrates. We need an affordable repayment plan, but so far absolutely nothing that comes close. No wonder RBS went bust, as did many of their customers (now being compensated).

  • Richard says:

    @Peter – whilst I’m quite sure you are right about dubious government practice (up to and including bailing-in clients money held in banks) – let’s not paint the banks as heroes here.

    All the way across the western world – from Iceland to the Ionian – there has been unacceptably sharp & dodgy practice carried out under the collective banner of ‘deregulation’ by senior level management in a great many banks – and enforced / sold / encouraged by more junior management and members of staff. In short – a disgraceful feeding frenzy of irresponsible greed and shambolic mismanagement.

    As the stories and (more importantly) data has emerged – it paints a bleak picture of how financial products were legislated, put together, sold and then subsequently ‘managed’ – which is why it is taking a long time to gain any sort of discernible & sustained resolution.

    I really don’t care if John Hourican is impatient or not. What matters is IF he has a desire to resolve the situation with integrity – then he (quickly) needs to get support from a wider power base (with even more integrity) than just himself and his supporters on the board he sits on.

    Talking to some real live clients and getting their perspectives wouldn’t go amiss either…

  • Helen says:

    How disappointing that John Hourican talks only about blaming the bad borrowers. There may well be some but there would be a lot less if the bank’s hadn’t lent mortgages with such bad products like the CHF loans in the first place. He talks about borrowers being treated properly and fairly – well let’s start with recognising my unfair mortgage debt created by currency exchange rates and agree a fair settlement!

  • steve r says:

    There wouldn’t be any NPLs if the banks had shifted the mortgages from Swiss Francs to a more affordable currency. I was told by my bank when I took out the loan that this could be done quite easily if the S/F started to lose ground. It would have involved an administration fee of around 200CHF.

    When I approached my bank they more or less shut the door in my face even thou it was the bank that suggested the S/F stating that it was the only currency that had remained stable for many years. It was as safe as the house I was having built. As many borrowers will know, the repayments shot through the roof. Mine went from 700CHF to 1280CHF in a matter of months. They did put a deal on the table after a few years. If I could find another mortgage company to take over the mortgage they would reduce the massive, current amount of debt due to my inability to make the increased repayments. Is the amount of debt incurred classed as compound interest ???.

    No other lenders would touch it mainly because there were no title deeds and the property value had dropped by nearly 30%.

    In the early days if the banks had come up with a mutually beneficial deal instead of the bullying tactics then people may have been in a better position to do business.

    Your mess, sort it.

  • Gary says:

    Would like to hear his views on banks mis-selling products to customers and then bumping up interest rates on the mis-sold loans just to try and squeeze more cash from customers who were already struggling to meet payments that had nearly doubled. The banks pushed many people from a position of financing their loans to having to throw in the towel. There are no winners in that scenario.

  • John Benton says:

    So this bank is complaining about some customers using the law to their advantage, which is inconveniencing the bank. Surely this can’t be the same bank that ‘stole’ depositors money during their highly questionable bail in process. I think we’ve heard it all now.

    Ed: It wasn’t the banks that ‘stole’ depositors money – it was the Government. If the Govt hadn’t done this there would have been no bailout.

  • pils says:

    The banks are all about money and profits.
    Not about people, I hope they suffer

  • Peter Davis says:

    @Jan,

    The problems lies with the Government who wilfully allowed trickery, chicanery, deception, deceit, duplicity, dishonesty, unscrupulousness, underhandedness, subterfuge, fraud, legerdemain, sophistry, skulduggery, swindling, cheating, duping, hoodwinking; and if they didn’t know it was happening they were asleep and not fit for the purpose.

    I like to think that John Hourican would not have allowed any bank he was working for to engage in such underhanded practices. It appear he is now trying to put “it” right. Power to his elbow, I should think it’s like trying to swim in a bowl of thick lentil soup. Progress is slow, but I’m glad he stayed and think he will make a difference.

  • Richard says:

    Has he looked at the number of cases where borrowers TRIED to reason with the banks? In 99.9% of those cases – the banks came up with an even worse ‘deal’ than the one it replaced?

    Has he looked at the number of cases that were being heard in the E.C.J?

    Most of all – has he looked at the banking ‘practices’ employed (especially between 2005 and 2009)?

    I am presuming he is aware of all three?

    So why does he persist in attempting to shovel all the blame on borrowers?

    There are solutions here John – but you won’t find them by ridiculous P-R displays of ‘macho posturing’. You “fell on your sword” at R.B.S over libor rate fixing, so you are WELL AWARE of the culpability of the banks.

    And that’s good – as so are the rest of us..

  • Jan says:

    Of course, the BoC never pulled a fast one on its customers did they!

  • Robert Briggs says:

    re; These NPL’s:
    The borrowers, willfully & cynically refusing to commence servicing their debts, in hope that ” De Good Times is just around the corner,”
    Well dream on Guys, cos it ain’t going to happen in Cyprus for quite some time to come.

    ( ps; Please prove me wrong:)

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