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Non-performing loans (NPLs) initiative

Following comments from the troika on the extremely high levels of non-performing loans (NPLs) the Cyprus government is preparing proposals to improve the insolvency and foreclosure laws.

Cyprus non-performing loans (NPLs) initiativeTHE GOVERNMENT is in the process of preparing proposals to improve the insolvency and foreclosure laws in a bid to tackle non-performing loans, Finance Minister Harris Georgiades said on Tuesday, especially those in the state-owned co-op bank, which is the process of being sold and possibly split in two parts.

Speaking at the 8th Nicosia Economic Congress, the minister said that depending on investor interest in the co-op bank the government planned to set up a loan management body to handle its non-performing loans.

The terms will be set by the European supervisors.

He said other banks too will be able to transfer their loans to the NPL administrator and those debtors who meet certain income and property criteria will be given support.

“In any event however, it must be understood that no loan will be written off,” he said. “Precisely because the administrator’s proceeds from the borrowers and not from taxpayers, will repay the debt the state has now assumed.”

The state, which nationalized the co-ops in 2013 through a €1.7bn injection, is looking to dispose of the bank, or part of its assets in a process that started last month.

It also deposited €2.5bn recently in a bid to boost confidence amid rumours that sparked a run on the lender.

As collateral, it received the co-op’s NPLs, worth around €6.2bn, which will most likely be moved to a separate entity, off the lender’s books.

But to have a chance to recoup the money it has poured into the co-op, parliament must agree to amend the foreclosures and insolvency laws to make it easier for banks to move against borrowers who do not service their debts.

The current legislation, passed in 2015, makes it difficult for banks to recover their money, something repeatedly pointed out by the EU and the IMF.

“The government is already working towards this direction, that is, preparing proposals to improve the insolvency framework and foreclosures,” the minister said.

The co-op bank has the biggest exposure to loans with primary residences as collateral.

In 2017, co-ops extended the collateral recovery period to seven years, a move that cost €150m in provisions.

Readers' comments

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  • Linda says:

    Every year for at least 5 years we have been told cases are due in court that year, and it never happens postponement after postponement!!!!

  • Gary says:

    Dear Ed, I disagree. It is clear that the product was mis-sold on a large basis. Parliament should act and resolve the issue. Individual court cases is not how this will be resolved. The Troika is only interested in finding ways to make the balance sheet of the banks look better. That is why they are blatantly ignoring the elephant in the room of the swiss-franc scandal.

    Ed: Neither you nor I can say categorically that the banks mis-sold Swiss Franc loans. A court in Nicosia made an interim judgement regarding Swiss Franc mortgages in January last year, which is a step in the right direction. More cases are due to be heard this year.

    In addition the Consumer Protection Service (CCPS) has imposed administrative fines fines on Bank of Cyprus and Alpha Bank Cyprus. These decisions will add weight to the plaintiffs’ arguments when the cases come to court.

    As Cyprus successfully completed it’s Economic Adjustment Programme the Troika has no leverage to force the government, but it can influence (as seen in their recent review reports.)

  • Richard says:

    “Ed: Unfortunately, the CHF loan mis-selling issues are currently allegations and will have to be proven in court. I understand the first cases are due to be heard this year. The banks are innocent until proven guilty.”

    We are hopeful that we have on a smaller scale – PPI take 2. PPI was a classic case of watching bankers who architected that biblical scam trying absolutely everything in the universe to wriggle off the hook before they (finally) had to face the music.

    You are right – the banks are “innocent” until proven guilty – whatever we may know what happened and how monumentally corrupt and irresponsible it all was.

  • MartynG says:

    Reference ‘John’ on this.

    Sadly for those many caught up in his, and that of, many others Problems/Issues, this one is a very different ‘kettle of fish’ a pretty Stinking Fish if I am any judge.

    Why the Cyprus Banking overseers have waited, as usual I suppose, for the EU to point up the Massive problems that have for so long almost be totally ignored, is beyond belief.

    With a banking and finance background, part of it with a ‘large Irish bank’ it has been clear to me for YEARS that a MAJOR initiative in Cyprus has been essential, seems it has been so scary that no-one wanted to ‘go near it’.

    Both AIB and Bank of Ireland set up major initiatives after the awful global problems of 2008 and HEY, with due caution but very firm programmes they first helped tackle the Republics banking underlying problems then setting ABOUT ‘helping those worthy of help – to get it”, the rump of it ‘packaged and bumped off’ to watching ‘ hawks’ to clear up the remainder, taking whatever ‘hits’ would have been necessary. Support from the Irish Central Bank helped the customer-facing banks ‘get over the hurdles’, and ‘sort out the messes’ that were everywhere evident – the Irish property markets had hit severe downturns but the process went on……and the Irish banking system, 10 years later, looks much more stable, banks are, with caution, lending again.

    Hence now in Cyprus the references to ‘The Irish Approach’ and with an Irishman heading up Cyprus’ major bank, there ought to be some further traction. If, as many suggest, the Co-ops are ‘basket cases’ then the Banking Overseers should be looking indeed very closely at what and how the Irish had to do’. Will they? Hmmmmmm!!

  • John says:

    How Bazaar!
    No mention yet again about how the Cyprus banks had mis-sold CHF loans/mortgages!

    Ed: Unfortunately, the CHF loan mis-selling issues are currently allegations and will have to be proven in court. I understand the first cases are due to be heard this year. The banks are innocent until proven guilty.

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