THE EUROPEAN Commission’s second review of the Economic adjustment programme for Cyprus is generally favourable to the progress being made by Cyprus.
In summary, the ECs report concludes that:
- The Cyprus programme is on track.
- The economic situation remains difficult, although so far the recession has been less pronounced than expected.
- The authorities have made important strides with the recapitalisation and restructuring of the financial sector.
- Fiscal performance has remained strong.
- Structural reforms are advancing, although delays and partial compliance were observed in a number of cases.
However, the report highlights that the Bank of Cyprus needs to take steps to continue to strengthen its balance sheet, reduce ELA (emergency liquidity assistance), and manage non-performing loans more effectively.
Although the Troika’s report does not mention specific names, it calls on the Bank of Cyprus to create two separate units – one for ‘normal’ NPLs and a ‘Special Projects Division’ for the top 22 corporates and real estate developers and that with a focussed approach attempts will be made to make the top 22 NPLs start performing again – or that action may be taken to seize collateral.
Bank of Cyprus
According to media reports John Hourican, the Bank of Cyprus CEO, has already sent stern messages to the bank’s large debtors, some of whom have already had ‘uncomfortable’ meetings with Mr Hourican.
Mr Hourican has also announced plans to establish a department within the Bank’s recoveries and restructuring section under the direction of Euan Hamilton that will deal with problem loans. The department will be headed up by a person with experience of negotiating the purchase and sale of property.
The department will comprise six units, one of which will focus on customers who owe the bank more than €100 million.
European Economy Occasional Paper 169 – The Economic Adjustment Programme for Cyprus Second Review – Autumn 2013 (December 2013)