APS and Altamira may prove ineffective in reducing NPLs

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By Stelios Orphanides

As the pace of reduction of non-performing loans in the Cypriot banking system appears to have dropped considerably in the first months of this year with banks resorting to outsourcing their problems to specialised units, two economists interviewed by the Cyprus Business Mail said that the see no light at the end of the tunnel.

As Cyprus is in the third successive year of economic growth, the signs that banks only managed to harvest the low hanging fruits are obvious as in the first four months of 2017, total non-performing loans dropped by merely €652.5m. By contrast, in January to April last year, the reduction exceeded €1.1bn according to Central Bank of Cyprus data.

“It’s obvious that there is a long way to go and a lot of work to be done in this area and we should be open to new ideas such as of assigning the management of non-performing loans to specialised companies,” academic economist Sofronis Clerides said in telephone interview on Monday.

Clerides was referring to the agreement of Hellenic Bank with APS Holdings to set up a specialised unit to go after the bank’s €2.5bn bad loans which entered into force in July, and a similar agreement of the Cyprus Cooperative Bank to set up a similar unit with Spain’s Altamira for its delinquent portfolio amounting €7.2bn.

He did not rule out a further deterioration of the banks’ loan portfolio should the economy -which is expected to grow 2.9 per cent this year after expanding 2.8 per cent last year and 1.7 per cent in 2015- slow down or even return to recession.

Another economist and former banker, Marios Clerides, said that “the problem is here to stay”.

“There is an attitude in Europe that Cypriot banks hadn’t been aggressive enough in their effort to reduce their non-performing loans and they should therefore try more aggressive solutions,” he said adding that outsourcing the problem to these companies was the response. “It will be the proof that the banks tried more aggressive solutions which ultimately didn’t work”.

The former banker who served until two years ago as the chief executive officer of the Co-op and before that at Hellenic Bank, said that by setting up these special units to manage delinquent debt, there is still a chance “of transforming non-performing loans to non-performing assets” via swaps.
It will be easy for banks to sell properties they swapped in exchange to loans situated in prime locations “but it may prove more difficult for properties elsewhere,” Marios Clerides continued.

“The problem has nothing to do with the (lack of) knowhow,” Marios Clerides said in reference to the expertise the companies which entered agreements with Hellenic and the Co-op are expected to bring in and help reduce their mountain bad loans. “You cannot easily introduce automatization when every case of borrower is different from the other”.

This applies especially to the Co-op with its large number of mortgages, he said adding that part of the problem, has to do with the “DNA” of the Cypriots who fell victims in previous times to usury and lost their properties.

As a result, the Cypriot society favours extending protection to borrowers compared to other societies abroad in which even getting a loan is considered a taboo, and as a result, borrowers enjoy less legal protection, he concluded.

Already on Wednesday, a crowd gathered outside of the premises of the Cyprus Cooperative Bank to protest against the agreement with Altamira. Among them, there were several politicians.

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About Author

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

  • Vegchef

    Perhaps these ‘specialised’ companies will go after guarantors without being subject to ‘political’ influence.

    • Terryw45

      One must assume these ‘guarantors’ understood what they were signing up for?

      • Cydee

        Ah, but in the ‘Mary Poppins’ land of yesteryear that just meant you liked the borrower!

    • Cydee

      I think that was the idea ‘it’s not my fault your house is reclaimed’…

  • Caulkhead

    Excuses, excuses. Perhaps the ‘DNA’ of the Cypriots would be more likely to change if they were treated the same as debtors elsewhere. In nature this is called natural selection. It is time these Cypriots debtors realised you can’t have rights without having responsibilities.

  • Marios Trakis

    Is that BoC talking Mr Orfanides? Is that your views….the “experts” views or Bank of Cyprus views?