Dealing with Private Debt and NPLs: A Comprehensive Blueprint


By Renos Ioannides*

The excessive private debt burden of households and businesses and the stubbornly high levels of non-performing loans are on top of everybody’s agenda these days, as they should be in light of their strategic importance for the country.

2018 will be, one way or the other, a milestone year for local banks on both fronts. Despite the inroads made to date, the situation is not self-healing and far-reaching decisions ought to be taken. If they are not, the long-term stability of the financial system may be put at risk and the impressive rebound of our economy may be jeopardised.

Solutions to the problems cannot be developed in isolation. A multi-disciplinary approach is required, which must be finely balanced so as not to jeopardise both the current and the potential state of the economy, public finances, the stability of the local financial system and the well-being of the people.

Debt levels must be managed to match viable borrowers’ debt servicing capacity; this is the only way of converting unsustainable debt to sustainability. At the same time, those borrowers who are exploiting the prevailing system’s weaknesses at the expense of their fellow citizens must be exposed and efficienty dealt with. A much needed revamp of the facilitating framework, the insolvency, enforcement and judicial regimes in particular, is therefore imperative.

Above all, what is required is a strategic view which shall be led and driven by a governing body of experts. This governing body should be fully accountable for progress and results via disciplined, pre-defined milestones and timelines.
A comprehensive blueprint (“business plan”) must be drawn up, instead of a piecemeal approach, with specific pre-agreed milestones (short-term, medium-term and long-term objectives, detailed output deliverables, pre-defined timelines and the set-up of expert teams accountable for each output deliverable).

A specimen blueprint is provided below, broken into distinct but inter-related step components, by way of indication of the multi-disciplinary approach that ought to be followed.

Such high-level blueprints can act as the basis for further technical analysis and expert discussions on each of the constituent components to arrive at a country-level resolution policy.

The specimen blueprint comes in two parts, the Core Key Portfolio Management Solutions on the one hand and the Peripheral Framework Facilitators on the other.

The two parts are intrinsically inter-linked and should, as a result, run in parallel.


(*) Renos Ioannides is a financial analyst [email protected]


About Author

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

  • Cydee

    On quick-scan (after enlarging) this seems a complicated and expensive set-up. The basic divisions only need to be 1) Could pay but won’t, and 2) Struggling therefore need strategy for repayments.
    No ! is the biggest chunk of our NPLs in which case it’s a simple ‘Won’t pay? Then we take away’.
    Easy. Just DO it.

    • Kevin Ingham

      Exactly- just give the banks the legal framework and it will start sorting itself out as much as possible and you take it from there. The law as it stands is the biggest obstacle to the problem

      • On the Fence

        Agree with you Kevin – Any normal country would repossess and sell by auction. Also, those who guaranteed the loans should be accountable and be chased to pay.

        • The Collateral is over valued they don’t want it.

          • On the Fence

            Valid comment – But get something as it’s better than nothing and will wipe the smile off some.

          • Kevin Ingham

            You have to start somewhere- there is probably about Euro 25 billion of loans in the system that people either can’t or won’t pay. That is an astronomical figure for a population the size of Cyprus.

            If they start repaying their loans then the spending on other consumer items will fall- a huge hit to the economy

            If the banks star winding up insolvent business unemployment will rise- another hit to the economy.

            There are a whole lot of nasty figures involved in sorting out the NPLs but the problem won’t go away, and the longer it is left to linger the more long term damage it does (new and innovative business cannot getting proper funding etc etc )

            So no matter how painful it’s going to be (and it will be brutal) it has to be done

      • Bruce

        In Cyprus you need more than a good legal framework to produce discipline in debt repayments. There has to be the political will to implement the laws.Strategic debt defaulters and tax evaders are allowed to make a mockery of laws in Cyprus as they are implicitly encouraged by politicians and politically-connected Government officials and bankers to not honor their financial obligations

      • The law makers have loans too 😉

        • Neroli

          And law makers wives do, but have €40,000 written off a €110,000 loan by the Coop. And this was someone who can pay her loan!

  • Copernicus

    RI provides a comprehensive blueprint which is a merger of various proposals put forward before and it is a useful approach. The fact though Mr Ioannides is that the experience hitherto has been of trying to reinvent the wheel and the result we have is what we see today at the Co Op and with bankers calling for changes in law and asking for payment of the loans; since the de risking has no taken place swiftly as it has taken place in other countries the risk is still on the balance sheets of banks and the problem is not going to go away.
    It is now 5 years since the crisis and compare the solution of Ireland and Spain with what the government has done hitherto in Cyprus by appointing and controlling the Central bank, the Co Op and indirectly the HB. Co Op is struggling and nee more support and where has the CBC been all this time? When you have appointees who are not fit for purpose or there to be yes men to the government this is what you get. No blueprint can change this unless there is a change of culture and have the rift people in the jobs.

  • Mist

    Try Bathe a dog, wash a dog, still it stinks of dog or They gave the peasant rope and he got on the bed with his boots on.

  • Douglas

    Only in fantasy island can you have such unsustainable deliberations regarding NPL’s,I feel sorry for the hard working honest people who have been conscientiously paying their mortgage commitments ,very frustrating system.

  • Stepharakalo

    The elegance and beauty of this theoretical algorithm with its comprehensive detail, symmetry and logic turns really ugly when faced with current reality. To have any chance of success, as the algorithm makes clear, all such strategy depends on determined leadership, sensible policy making and meaningful governance.
    These bases have already been covered comprehensively by the Cypriot government but, unbelievably, all efforts have been misdirected, hijacked or cynically and deliberately aimed at defeating any prospect of reducing the mountainous npl problem. If nothing else, the algorithm illustrates beautifully just how ridiculously badly this has been mishandled by the Cyprus government! Unforgivable, and, as a direct result, a very expensive day of reckoning is inevitable