The Case for NPLs Strategisation


A. Where are we?

When Cyprus was embarking upon its journey into the unknown territory of elevated NPLs and excessive private debt along with banking uncertainty, following the events of 2013, little did we know that 5 + years later we would still be facing the same ‘whims of the weather’ and the same hardships, with no sight of a safe harbour yet.

Or maybe we should have known. Really, what could anyone reasonably expect, without a captain at the helm and a compass to guide us through, without preparatory work and a plan, without knowledgeable and dedicated executors to pull us through the storm?

Although painful efforts, by all stakeholders, have been put into handling the challenges we have been long facing, we have followed, yet again, a fire-fighting, piecemeal and typically short-sighted approach. As a result, we still find ourselves exhausted and helpless in the middle of a long ongoing storm.

B. Where must we go?

We cannot continue like this. We have to plan, act and execute intelligently to lead and drive ourselves to the safe harbour we have been longing. I call this intelligent planning and execution as ‘NPLs Strategisation’.

The time is now mature enough to stand back and take a strategic view, design a holistic approach on the basis of our lessons and experiences of the past five years and execute the plan using expert resources.

NPLs Strategisation is now an unquestionable pre-requisite for the future of our economy. If we don’t adapt our modus operandi, we will end up in ‘back-to-the future’ ruins.

C. What does NPLs Strategisation entail?

NPLs Strategisation entails a State-espoused national NPLs and Private Debt Strategy aiming at a structured resolution of the excessive NPLs and excessive private debt issues that our country is facing.

This strategy will encompass a holistic, strategic approach, reinforced by all-round objectives, which shall take into full consideration all inter-dependencies and inter-links of NPL issues. Specifically, NPLs Strategisation will include a country-wide, bank-wide project-based approach which shall give rise to:

  • independent, objective and all-encompassing borrower segmentation across all NPL portfolios (all banks, terminated and non-terminated accounts).  This segmentation will distinguish viable borrowers, over-leveraged but viable borrowers, non-viable borrowers, non-cooperative borrowers, and those truly vulnerable / deprived borrowers who are in need of social assistance,
  • independent, objective and all-encompassing borrower segmentation across all NPL portfolios (all banks, terminated and non-terminated accounts).  This segmentation will distinguish viable borrowers, over-leveraged but viable borrowers, non-viable borrowers, non-cooperative borrowers, and those truly vulnerable / deprived borrowers who are in need of social assistance,
  • the design of borrower-specific strategies on the basis of borrower-specific characteristics, the primary objective being to match the level of debt with the debt servicing capacity of borrowers,- professional execution of these borrower strategies, with an efficacious implementation of truly sustainable debt restructurings where possible,

all of which are inextricably interlinked with, and interdependent on, an effectively operational insolvency framework which will facilitate and promote timely and cost-effective enforcement resolutions where necessary, combined, at the same time, with protection of truly vulnerable borrowers.

Importantly, this procedure will lead to the natural uncovering of all those strategic defaulters, who have waved the ride of the insolvency framework’s inefficiencies to date but should no longer have the opportunity of economically usurping obliging borrowers’ disciplined payment culture.

D. Who will take us there?

A strategic mix of independent professional experts will take us there.

i. A governing body of independent experts which will have overall and undisputed responsibility and accountability for the project (‘Project’), the captain at the helm as it were, the Project steering committee.  This body will set the terms of reference, the objectives, the Project milestones (short-term, medium-term and longer term) and will overview and monitor implementation and adherence.

ii. Knowledgeable, specialist experts who will carry out the foundational and the most important strategic piece of the Project: a complete segmentation analysis of all NPL borrowers across all banks (terminated and non-terminated accounts), utilizing uniform analytical tools and criteria and pre-defined time cut-off criteria.  This analysis will be the compass at the hands of the captain and the executors.

iii. Dedicated executors: independent debt servicing and real estate asset management experts.  These will be the experts who will be implementing the strategy on a day-to-day basis.

iv. Specialised experts who will build upon our existing insolvency and enforcement frameworks with a view to re-designing them for maximum effectiveness and efficiency.  These frameworks are the facilitators of the NPLs Strategisation approach.  Without a revamp of these frameworks, no strategisation in the world will get us out of the dire straits we currently find ourselves in.  A number of inter-related legislations and regulations must be upgraded.

E. What are the benefits of this approach?

The following are the specific benefits deriving from the proposed NPLs Strategisation approach:

i. Truly holistic approach which shall take into account the national importance of the issue insofar as the state of our economy and the well-being of the country’s society are concerned.

ii. Maintenance of unbiased independence and objectivity.

iii. Zero tolerance to political intervention and to involvement of lenders or other stakeholders (eg borrowers’ associations).

iv. Undisputed Project responsibility and accountability.

v. Full Project management approach, with milestones setting and strict monitoring.

vi. Use of standardized collection and analysis methods, processes and procedures across the entire NPL portfolio (all banks, terminated and non-terminated accounts).

vii. Use of tested tools and methodologies, uniform and consistent criteria and universally acceptable results and reporting.

viii. Leading to the design of well-informed and fair strategies for dealing with each category of borrowers.

ix. Expertise, dedication and objectivity in the day-to-day dealing with each NPL case.

x. The holistic approach will expose all strategic defaulters who will no longer be able to take advantage of the inefficiencies of the system, whilst at the same time, it will protect all those borrowers who are genuinely in need of assistance.

xi. Costs to be borne by lenders (borrower segmentation analysis, strategies and execution) and the State (governing body of experts, insolvency / enforcement experts).

F. Conclusion

Our resilient economy will not be able to withstand the excessive debt of the private sector nor the elevated NPLs level for much longer. Nor can obedient borrowers withstand for much longer the shenanigans of those few (or possibly many) strategic defaulters, as a result of our insolvency and enforcement framework shortcomings.

Now is the time to act intelligently. The State must take a bird’s eye strategic view. We must act on all fronts, in a strategic, holistic manner which does not leave anything to chance.

That safe harbour is a real destination. What we simply need, is an intelligent, persistent and holistic pursuit of NPLs Strategisation. Now.

(*) Rennos Ioannides is a financial analyst



About Author

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