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1st July 2022
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HomeProperty ArticlesHow we could deal with the transfer of BoC assets

How we could deal with the transfer of BoC assets

Bank-of-Cyprus-HQ THE physical transfer of the banks’ assets (mainly owned and repossessed collaterised assets) to an Asset Management Company (AMC) has been the case of extensive debate and discussion in Cyprus (and the EU).

Taking into account the solutions provided in Germany, Ireland, Spain and Portugal, it seems that there are two key forms of structures that our banks could potentially adopt in Cyprus:

The German Structure

The first one relates to the asset division which takes place at the banking entity.

In this structure, the shareholders of the ‘good’ bank (with the ‘good’/performing loans) are also the owners of the ‘bad’ bank (non-performing/repossessed assets) and potentially assume unlimited future losses from these problematic loans (this solution was partly implemented in Germany).

The Irish/Spanish Structure

The second structure of a real estate-management (REM) bank or an AMC is similar to the Spanish-Irish solution.

The banks’ assets under are ‘sold’/transferred to a joint government company that then conducts the wind-down (disposal) comprehensively. In Ireland, after transferring the assets to this wind-down company (called ‘NAMA’), the ‘good’ part of the banks (and their shareholders) were entirely relieved from any future losses from problematic loans and the repossessed.

One could argue that the set-up of a REM bank or AMC in Cyprus will mainly depend on the scale and nature of the expected losses resulting from disposal and effective management of the repossessed assets or the assets under management.

Troika will require the strict application of the Memorandum of Understanding (MoU) measures. In the original settings of the Memorandum, the option of an Asset Management Company was indeed discussed where assets will be transferred at their long-term economic value.

To this end, it is noteworthy that the difference of ‘real estate-management bank’ and ‘asset management company’ has to do mainly with the handling of the emergency liquidity (ELA).

The real estate-management bank could take over part of the emergency liquidity that has accumulated in the books of Bank of Cyprus (BOC), potentially improving its balance sheet.

On the other hand, the asset management company will not be a bank and will not be able to absorb the emergency liquidity that has real estate as collateral.

Depending on the solution to be decided, all collateral for the problematic loans that have been granted in recent years will be transferred to the new entity, and the new entity – bank or company – will undertake the asset sale or rent in order to repay the loan.

The key aim of the of an AMC or a REM bank is to pro-actively manage and wind-down these problematic assets with a view to maximise recovery value (note that there are also social/economic implications that the policyholders need to address with mass liquidations and disposal of properties).

The asset transfer at long-term economic value would require a meticulous quality review. Pricing these assets most likely to lead to a significant discount compared to current book values (in Ireland assets have been discounted as much as 70% from their book value when transferred to NAMA).

The AMC authority (or shareholders) need to have tight control and ownership (working closely with external advisors), while Cypriot banks should only have negligible control (even if they are the ones who have the initial customer relationship).

The AMC will require the setup of asset managers with local knowledge of the property and banking sector, exclusively pro-actively managing these assets. The setup and execution of such a model requires thorough preparation, both from the Cypriot authorities but also from the participating banks to ensure that all economic, legal and accounting issues are addressed properly.

The new Bank of Cyprus needs to start fresh and isolate itself from the ‘bad’ or ELA assets. Cleaning their portfolios, it’s the only way the Cypriot banking system will revive and breathe again. But until then, we have a long way to go…

Dr George Mountis
Partner | Banking, Strategy & Financial Services advisory | Leaf Research



  1. The sooner BOC goes down the tubes the better it will be for a new start for most, they are simply filth! they have more control on the Island than the government, especially with the title issue, they basically make hundreds of million of Euros every year from the so called “Bank Guarantee” cos there is no title on a property, which don’t be fooled is no insurance, its just another way of sucking your money out of you.

  2. @Jon Frazer. The point is that the reason you are now at ECHR is because the EU Commission and EU Parliament have not been effective remedies. Imagine if every time in the UK a person trying to get anything implemented there that was already enshrined in law had to go to the UK Supreme Court because the UK government ministries and parliament ducked and dived and refused to implement their own laws. That is the EU situation – a grand pretence of protection for EU citizens. A gigantic political fraud. I make no anti-EU or UKIP statement here, for I am pro-EU in principle. The weakness is in how it has been enacted. Radical reform is required.

    @Steve. BoC will probably not ‘go down the tube’ in the short term as it is within the current EU bailout protection. The uncertainty increases as we head out of the bailout programme and Troika control. Will BoC be able to keep to the straight and narrow or will it fall back to old and dodgy practices? Will the markets and investors have sufficient trust and confidence in BoC (or any Cyprus bank)? A large chunk of the haircut losses are in enforced BoC share conversions and so shareholders will be demanding action to keep on increasing the share value so as to recoup their losses – but how fast can the management deliver this, if at all?

  3. Alan Waring, thank you for your response which is very sad, but probably true.

    So the next question is, why do we, the Consumer, pay EU contributions via our taxes if they cannot help us when our basic rights are being denied?

  4. There is not enough emphasis here on BoC going down the tubes before any of the options discussed can be properly evaluated and a best way forward chosen. We still don’t know one half of the bad news and every time a little bit leaks out it serves to paint a blacker picture. It is not even 12 months since Mr Aristodemou, chairman of Aristo Developers, resigned as chairman of BoC citing health reasons. I think it was the health of BoC that was the problem.

  5. Costas/Alan,

    Without wishing to get into the debate over the effectiveness or otherwise of the EU in respect of consumer protection, justice etc., I would point out that the European Court of Human Rights (where we currently have a case), is completely independent from the EU.

    Indeed, it predates the EU. (1953).

  6. @Costas Apacket. To answer your question ‘what is the EU good for?’ may I refer you to page 119 of my latest book Corporate Risk and Governance (Gower)where I address the effectiveness of both the Council of Europe’s GRECO (Groupe d’Etats Contre la Corruption)and the EU Commission:

    GRECO “has neither the remit nor the resources to find out about the real extent of corruption in a country. In this respect, GRECO is rather like the EU Commission, which has no remit, resources or mechanism to monitor and audit compliance with EU Directives in member states. National governments are left to comply ‘on their honour’ and many have shown a propensity for evasion, dissimulation and downright lies in their responses to such supra-national bodies. GRECO recommendations are largely ignored, evaded, diluted or delayed by recalcitrant governments. Even where it may have some scope for imposition of limited penalties, the EU Commission has shown itself very reluctant and slow to do so. To that extent, by being unwilling or unable to ‘get their hands dirty’ with compliance and with specific cases on non-compliance, both GRECO and the EU Commission havetarnished their images and reputations and engendered widespread contempt among populations who, not unreasonably, expect such bodies to offer them real protection and not act like paper tigers”.

    EU Justice Commissioner Viviane Reding has not been short on fine-sounding rhetoric concerning EU citizens including property fraud victims. On page 139, I add “Unfortunately, such fine rhetoric is likely to sound hollow and meaningless to the thousands of aggrieved victims who remain unprotected, without redress and deeply cynical and mistrustful of the EU and its Commission”.

  7. Surely somewhere in the over-meddling rules, regulations and standards of the EU there has got to be the basic premise that if you buy something and pay for it in full, then it belongs to you?

    In addition EU Consumers right to peaceful enjoyment and possession of their paid for property has got to be a basic right, hasn’t it?

    If not what is the EU and its associated Consumer Law good for?

  8. The Comments so far below illustrate just how deep and embedded the problems relating to property in Cyprus – within Government, property development & construction, legal, banking and regulatory – have become. Can they be resolved? Possibly. Will they be resolved? Very Unlikely!

    Too many ‘vested interests’, too many potential Inquiries tainted by some, many even?, of those involved, members of the (so-called) ‘mates club’. And lets not forget the Eu/ECB and their Troika who, supposedly, arranged, and (somehow!) issued Pass certificates, following the ( supposedly thorough) ‘Stress Tests’ over the last 2 years.

    = almost everyone within the above ‘professions’ working either for easy and/or illicit gain and/or to keep the Ill-conceived Euro/Eurozone dream alive.

    Cyprus may be one of the very smallest EU/Eurozone members but -a) it has become an internationally discredited EU/Eurozone country and b) will need, even with a strong and committed government – if it has one -, massive tenacity in identifying and addressing the core underlying problems.

    Will those – either through innocence or ignorance – who truly have – and likely still are – being massively let down by the above greed and non-compliance factors get satisfactory redress, compensation?

    I sincerely Hope so, but do I think/believe they will?. Sadly No. The Word will travel and the Cyprus property markets and economy will only continue their recent frightening downward spiral. The vultures will likely swoop and some, hopefully not many!, will profit. Many, many more I suspect will end up disappointed, the visions of attractive gains will likely be wrecked by a lethal mix of the factors mentioned above.

    SO: The Cyprus Hey-Days are well and truly over. The Cyprus ‘bubble’ has finally burst. And despite the hoped-for benefits of MedGas many thousands of unfortunate/unaware people who bought Cyprus properties will likely, despite late efforts, lose out at the expense of the bankers, lawyers and, Yes, the politicians and Eurocrats who still, understandably, pretend ‘everything will be OK in the end’.

    Oh Dear, there are so many Victims and so relatively few decent, honest Winners, I can only ponder just how far things will spiral further downward before the next ‘ Big Bang’.

  9. Taking property and belongings is normally associated with ethnic cleansing. What message will Cyprus send to the world?

    People affected from all European countries should consider taking joint legal action.

    Better still the Troika or Cyprus should make it clear that buyers who were duped will be given full title to their property, without further delay. Failure to do that should not be rewarded with bailout money.

  10. During the past few years, there’s been far too much carrot and no stick whatsoever when it comes to successive Cypriots governments being told to rein in the excesses and downright criminality of developers, banks and those would-be upholders of probity, lawyers.

    And we all now why. In short, they’re all linked. Former board members of the banks have been appointed Finance Ministers; one Chairman of the Bank of Cyprus also had extensive links with a high profile property developer; the majority of MPs are lawyers. Beat that little lot if you will.

    Carrot time is over. But will the so far toothless EU and troika ever use the stick with gusto?

  11. Repossess all the properties that have mortgages that were mis-sold and through no fault of the client are now non performing. Most will have developer mortgages that are also non performing and non will have title deeds. Put them up for sale and magically make the title deeds appear in quick time.

    Forget the specific performance because the purchaser has fallen behind with the mortgage and the S.P now reverts back to the bank (read the small print).

    Sell these properties for a fraction of the value to the mates club and now you have satisfied Troika and millions can be wiped off. Apply for further bailout.

    Mates club resell the properties to Chinese or Russian clients this time with title deeds making some wealthy mates club members. Happy Days.

    Application to join mates club has been suspended

  12. Trojan Horse, AKA Cypriot donkey! Bear in mind that if a Cypriot politicians lips are moving then he is invariably hatching a series of ‘artful ways’ with which to extract your hard earned money into his collective pocket in exchange for as little as possible if anything at all. History has proven that to be the fact.

    Now we must see if lessons have been learnt and that the almost irreparable damage to the nation and its commerce is put on the road to repair. Accepted and civilised modes of operation and legislation have to be adopted to ensure at least a chance of some degree of integrity and willingness to adapt and adopt. If not it will almost certainly be an ever decreasing spiral into oblivion and poverty with a few more scammed bodies of people, caught up in last ditch efforts to get something for nothing, having been embezzled on the way down. Lets hope common sense prevails.

  13. Does the Troika or the Cypriot government have any idea, of the disaster that awaits home buyers, who have not yet received their title deeds, and who may/will, by no fault of their own, be made homeless when their developer cannot or will not pay back their loans. How will the ‘new’ bank cope with the thousands of unsaleable repossessed houses, and how will Cyprus cope with the former occupants, who will be by all accounts dependant on the state for support. But more over, does the Troika or Cypriot government actually care?

  14. The then Minister of the Interior (or should it be Inferior?) was given a face to face briefing on NAMA by Denis O’Hare of CPAG in 2009. He was accompanied by his CPAG colleague Dr Maria R a former lecturer at the University of Cyprus and well known to some of the minister’s staff having tutored them.

    The Minister even phoned the British High Commissioner the following day to inform him that they were considering the Asset Management suggestion.

    Dr Maria had previously worked in the UK for years whilst employed by the Cyprus Government and had bought properties without problems. When she returned to Cyprus she ‘bought’ a property from a developer – yes you guessed it! site never completed, developer mortgage, etc, etc.

    By all accounts she gave the Minister a real tongue lashing who just sat there and took it!

    See also Can Cyprus benefit from the Irish experience?.

  15. Maybe the world or the Troika should consider the fate of homebuyers who were duped into buying property which have non performing developer loans attached. Why should homebuyers be left homeless when they were not informed of these loans by their lawyers. Buyers were not aware of these developer loans and were hoodwinked by the “Cyprus system”. These buyers should receive their title deeds and compensation. The banks and/or the Cyprus government should write off these undisclosed developer loans.

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