Weak laws, payment culture to blame for high NPLs, officials say

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By Stelios Orphanides

Loan repayment culture in Cyprus is bad and the legislation in place is doing little to improve it even as it is threatening financial and macroeconomic stability, was the main conclusion of a recent panel discussion.

Explaining the high level of non-performing loans (NPLs) with weak lending practices is “not the whole story,” said Vincenzo Guzzo, the representative of the International Monetary Fund in Cyprus (IMF), at a discussion organised by the Cyprus Economic Society in Nicosia this week.

The level of NPLs, which stood at around 45 per cent of the total mid-2017 –and were together with that of Greece, the highest in the EU– exceeded 120 per cent of economic output and is by far the highest in Europe, he said.

Given that it takes up to 1,000 days between filing a lawsuit and receiving a payment, unsurprisingly, Cyprus has the longest average payment duration from business to business in the European Union of almost three months, Guzzo added. NPLs in Greece were about 60 per cent of the economy.

Additional data, presented by a Central Bank of Cyprus economist further underscored the picture presented by the IMF official.

While the average income of the households with 90 days-past-due loans fell from €37,082 in 2010 to €23,561 in 2014, the value of their real assets were double their un-serviced loans, the bank supervisor’s chief economist George Kyriacou, one of the panellists said.

Households with 90 days-past-due loans made up 27 per cent of the total and had liabilities amounting, on average, to €193,947 in 2014, Kyriacou said.

The value of their real assets was €399,997, on average, and excluding the value of the primary residence of households with delinquent loans, their worth was €203,092.

In addition, this category of households had an average of €6,643 in deposits.

In 2010, when only 10.8 per cent of the households had loans they failed to service for three months or more, the value of real assets, excluding the household primary residence, was €281,275 against €160,732 in total liabilities and €13,634 in deposits.

“The people who have these loans have real assets and that is why we have debt-to-asset swaps,” as part of loan restructurings, he said.

On the other hand, pressure to enter loan restructuring negotiations on delinquent borrowers is still low in Cyprus as it takes up to ten years to foreclose a property, which again appears to co-relate with the banks’ high NPL stock, according to Guzzo who cited 2014 figures.

“This is alarming,” he said, as it discourages borrowers to show lack of discipline and strategic default.

Cyprus reluctantly modernised its insolvency and foreclosure legislation after it signed its 2013 bailout agreement and the limited number of foreclosures after the introduction of the new law does not allow safe conclusions about the impact the new law had on speeding up procedures.

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About Author

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

  • Geoffreys

    The live now, pay later, culture.

    • Muffin the Mule

      Live now never pay later you mean.

      • Cydee

        A yes, the Cyprus version. Good one Muffin.

    • Eye on Cyprus

      So this is where the second ‘never’ comes in ‘the never, never”.

  • Sistine301

    People pay for their own mistakes. There should be a taxpayers’ revolt should they be saddled with paying for delinquents who like living above their means.

  • Pc

    Various experts, including those on this panel discussion, have been pointing the bleeding obvious out for decades now. But will politicians act? Not until they feel it in their own wallets, it seems.

    • Barry White

      The Politicians are included in the NPL`ers and their “supporters” the “developers and hoteliers” rank among the largest NPL offenders. Little wonder no real action is taken, Pc.

      • Neroli

        I’m amazed the President doesn’t pardon all NPLs for a few more votes he did it with the football clubs tax bill

        • SuzieQ

          That’s a brilliant idea—— think I’ll get myself an NPL!

          • Neroli

            I wish I had one, if you can’t beat them join them!!

          • Eye on Cyprus

            Get one for me, while you are at it. Let me know which bank, so I can apply at a different bank for both of us.

          • Neroli

            Can you apply for me too?

          • Eye on Cyprus

            OK, Neroli, I’ll get three. I’m sure that SQ will include you. Maybe you could try a different bank for all three of us.

          • SuzieQ

            N is included.

          • Barry White

            Once you have the NPL, Ms Q, can the toy boy be next?

          • SuzieQ

            Alas, I had one, once……

          • GSP

            What? An NPL or a toy-boy?

  • cyprus observer

    And this is exactly why the Cypriot economy cannot recover until this issue is dealt with definitely.

    • Vladimir

      and will never recover…

  • Eye on Cyprus

    It isn’t “weak laws” or “culture”. It’s poor or absent morality among the debtors. An honest person doesn’t need a law to make them behave morally.

    • Barry White

      Amen, Brother EoC, Amen.

    • Neroli

      You’re right there Eye, on the other hand many people know that as there is no foreclosure – and if there is it’s a weak attempt – so why bother paying back the loan.

    • Evergreen

      100% correct observation.

    • Viale

      As history shows, lacking laws changes the culture. Even the most honest nation would become dishonest if actively encouraged with impunity and perception of not harming anyone but faceless, rich bank.

  • Bob Ellis

    Which bank is next ? or will it be the economy in general ?

    • Neroli

      There is no economy!

      • Bob Ellis

        Most feel Chinese buying passports will go on forever. Poor deluded fools.

        • Evergreen

          True.

    • European Citizen

      Bank of Cyprus is next to go down.

  • almostbroke

    ‘Deliberately ‘ weak laws and a reluctance to pay debts of any kind !

    • Neroli

      Lawless society!

  • SuzieQ

    Name that bank!

  • Nigel Howarth

    Vincenzo Guzzo should try his hand at ‘Mastermind’; specialised subject the bleeding obvious.

  • Vladimir

    ” the average income of the households with 90 days-past-due loans fell from €37,082 in 2010 to €23,561 in 2014″ + high unemployment rate + NPLs… and they say that the crisis has passed and the economy is on the rise?????

  • costaskarseras

    The Sun readers in Cyprus, once again are ready to show off and demonstrate how well informed they are. By using their intelligence they are able to solve intricate economic problems that affect rich countries. I would like to attempt to pick their brains on how to solve the huge problem of unemployment, homelessness and food kitchens dotted all over many rich countries including Britain. One crisis follows another, our hospitals ‘felt like something out of a war zone …” according to the Guardian 11 of January. In addition, Britain has to deal with the collapse of the Carillion company condemning thousands to unemployment and small companies are now facing a bleak future. Many are fearing that Carillion will have a domino effect.

    • Neroli

      The Sun??? Obviously you know more about that than many here. But again Costa as you are well aware the article is concerning the non payment of loans in Cyprus. Not just The man on the street but also many MPs. This has nothing to do with people at food banks or unemployment but the fact that for so many years many Cypriots think it’s their right to ‘borrow’ money from the banks for houses /cars with absolutley no intention of paying them back even with the deposits in the bank! So don’t go drifting off talking about UK.

      • Evergreen

        Well said.

      • GSP

        But the UK is all he knows about as that is where he lives. And obviously, all he reads, apart from CM, is the Sun. Not a lot to chose between the two, actually, except that the CM doesn’t have naked women in page 3.

        • Neroli

          I think I read that The Sun stopped page 3 girls !!

          • GSP

            So there’s nothing to chose between them then 🙂

  • European Citizen

    NPL’s are not an issue if the banks tighten their lending criteria, but they do not!

    Instead, banks in Cyprus are stifling foreign investment by “overregulation”, especially people and companies from Europe suffer the most. While the banks can by legal means request all the information regarding the companies/people/transactions in question from other EU entities – they prefer not to do it, and force their clients to waste time obtaining millions of unnecessary documents, which the bank employees completely misinterpret causing delays for months at a time. Complete incompetence.

    If the foreign investments are flowing in, while loans are harder to get, the NPL ratio will go down, thus derisking the banks, and the economy. Banks are convinced otherwise… I wonder if someone even more incompetent is telling them to do what they are doing.

    • GSP

      Why should any foreigner invest in Cyprus?