BOC intends to sell €20m in restructured loans, source (Update-1)

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(Updates with additional background)

By Stelios Orphanides

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’s 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.

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About Author

Stelios Orphanides is a journalist at CyprusBusinessMail.com. To contact Stelios Orphanides: [email protected]

  • QLFD

    I was wondering why the shares of BoC suddenly surged in LSE, the few past days…
    Nice insider tip…one more reason NOT to invest in the cypriot economy when you are not a local.

  • Uh oh these new guys will want to collect !

    • Didier Ouzaid

      how? if the largest lender cant (and possibly after restructuration), how will a smaller lend do it, especially if they’re also local?

      Unless they sold these loans to mafia enforcers, that is…

      • QLFD

        good question…I guess it would be sold through a package mixing good and bad loans…otherwise I don’t see how either…

      • Cydee

        The Bailifs are coming…..

      • They will call in assets and guarantors, which the BoC was reluctant too i guess.

      • I guess the new guys won’t be known to the borrowers.

    • Pc

      These are restructured NPLs. So, the loans are currently being serviced.

      The reason why BoC wants to ofload these, is to adjust its risk profile (not all eggs in one basket, etc).

      • QLFD

        I don’t understand the logic….BoC would sell performing loans (as a NPL once restructured becomes performing again), and keep NPLs on its balance sheet…??

      • Restructured means a new affordable deal is made it doesn’t mean it’s serviced. It’s classed as performing regardless for 90 days.

  • Andreas Louca

    THhs kind of selling lead to the banking crisis in the first place , USA bank selling to Europaen etc and look what it did to the economies . The Best solution for all is to liquidate the developers , and all NPL . This would be a reality wake up call , and would possibly prevent future cases . But the rumour is out that new loans for cars are now the new NPL .???.

    • Pc

      Not true at all. What led to the banking crisis was the fraud committed with these papers. Goldman Sachs, Deutsche Bank and others were selling these so-called Mortgage Backed Securities as virtually risk free when they were really full of high-risk mortgages.

  • disqus_ZPlOdQqScB

    Good now either way they will pay up – amazingly some might buy back in 45 days! or face a new bank who will force them one way or another.

  • ajp

    The problem with this type of restructuring is that that it will come back to bite them. If you move a debt from one side of the balance sheet to another as a debt bond it does not solve the problem it just shoves it down the road to a later date. The biggest problem is believing that Cyprus is out of debt there is massive building work under way in Limassol not only with high rise developments but with apartment blocks. My guess is that the BOC are artificially stimulating the economy by granting loans from funds gathered from debt bonds. If as an investor you know what is in the bond then there is no problem if you hide non performing debt in the small print then down the line this will create problems as the loans fall into default.

  • Jeremy Rigg

    Don’t you just love these shyster bankers. They are the same the world over.