With new stress test looming, strong NPL laws key for banks

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By Stelios Orphanides

The finance ministry and the Central Bank of Cyprus (CBC) warned lawmakers on Monday that possible changes rendering the proposed draft bills on the management of non-performing loans less effective could negatively affect Cypriot lenders in the upcoming stress tests, the Cyprus News Agency (CNA) reported.

As political parties maintained their reservations over the bills approved by the cabinet last week, the outcome of the vote appears to be depending on Estia, a scheme designed to help vulnerable households and corporations repay mortgages.

The Disy-supported government indicated its willingness on Monday to accept proposals tabled by Diko on side aspects of the laws in order to gain its support to have the bills, which aim at facilitating the faster reduction of delinquent loans in the banking system, passed.

 

The approval of the bills is also a condition for the European Commission to approve the sale of the Co-op’s operations to Hellenic Bank, including €9.7bn in deposits, much of which is guaranteed by the state which will in turn have to compensate depositors in the case of the state-owned bank’s resolution which further increased depositor concern.

Even as members of the finance committe were debating the legislation, queues outside branches of the Cyprus Cooperative Bank showed no signs of a let up on Monday. Members of the public were trying get out as much cash as they could, sometimes getting frustrated with the €3,000 cap.

In some instances, the queue extended outside of the bank’s entrance with people abandoning one branch to go to another only to face the same story.

One elderly lady said she didn’t believe the government’s assurances and was taking her money out to give to her children so they could go on holiday.

“Instead of leaving it their for the bank to eat up, I might as well let my kids enjoy it,” she said.

“Our framework is under evaluation,” Andreas Charalambous, head of the finance ministry’s financial stability directorate told lawmakers of the finance committee on Monday according to CNA. “This is not an attempt to scaremonger (but) they are making assumptions on how quickly one can recover his money from immovable property; if it takes time, this is translated to equity.”

A representative of the central bank said that assumptions and capital requirements are a function of the time a loan is in arrears.

The chairman of the finance committee and president of Disy, Averof Neofytou warned that while the foreclosure law, one of the laws the government wants amended, is “lenient” possible amendments to the proposed bills could have “disastrous” effects on future generations.

Neofytou also said that he considered that it is important not to send the message to borrowers repaying their loans that “they should consider themselves suckers and that so called smart people take advantage of the system’s weaknesses by not paying back their debts, spending a more comfortable life at the expense of less privileged citizens”.

While Akel, the largest opposition party with 16 deputies, indicated that it was unlikely to vote in favour of the bills, a Diko lawmaker said that his party would likely vote in favour. With the impasse over one of the seats won by Solidarity in the past parliamentary elections continuing, thus reducing the number of lawmakers to 55 in the 56-seat parliament, the 18 votes of Disy and the 10 votes of Diko would be sufficient to form a majority without the government having to rely on other minor parties or maverick lawmakers.

Giorgos Perdikis, the chairman of the Greens, said that his party will decide after studying the bills including on Estia and the body managing non-performing loans.

Stefanos Stefanou, a deputy of Akel, the communist party that traditionally opposes foreclosures, criticised the government for exploiting the sale of the Cyprus Cooperative Bank as an opportunity to argue that the problem lay with non-performing loans.

“Therefore, it brought in express procedures five draft bills to the parliament and is trying to have them pass without any substantial debate,” he said and added that his party would not accept having the bills put to a vote on Friday in support of the government’s “one-dimensional” policy benefiting banks.

Angelos Votsis, a deputy of Diko, said that after the government approved his party’s proposals for legislative changes on the management of non-performing loans, what remains to be seen is how the proposals will be incorporated into the laws.

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About Author

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

  • Kevin Ingham

    What sort of “stress test” would allow a bank with an NPL ratio of over 40% to pass it ?????

    Anything over 4% is considered problematic in the real world

    • The Truth

      Kenin – The last two words gives you the answer in La La Land.

    • Colin Evans

      Simple answer to that one…….. Mickey Mouse!!!

  • almostbroke

    Stop prevaricating ,do the right thing however painful it may be for lost votes ! Remember it will not make any difference , the Political parties they control the candidate selection process so the parties will come out on top , always candidates from the upper echolons of Cypriot society , oh ! A change of personnel is that the problem !

  • Barry White

    Baldrick, where did I put that ostrich feather?

    • flange

      ur backside?

      • The Truth

        Did it tickle your fancy – Dear.

        • flange

          seems it did yours MF

          • The Truth

            You have the correct user name – A Dirty old one me thinks.

          • flange

            u thinks? u sure u can?

          • The Truth

            I’ll leave the dirty flange’s to the GC’s as don’t want them crying. Some cultures have standards which the last time I heard the GC’s attempted to emulate but just couldn’t achieve.

          • flange

            snackbar cried the isamic ape from cental asia desperately wanting to be seen as european and not mongolian

          • The Truth

            Assumption again – But I have travelled in Central Asia. Very nice the Stans

  • Bob Ellis

    As Greece slowly disappears into the third world why would anyone expect Cyprus not to follow. The EU, ECB amd ESM have kept their gravy trains going despite Greece literally going to the dogs,why would they care about a smaller economy at the edge of Europe that will not help itself ?

  • TallTony

    Was at the Ministry of Finance today. The queues outside the coop within the building stretched to the reception desk.

    • Barry White

      Sounds like the Civil Servants are getting theirs out.

  • Barry White

    Chaos and Infamy as in “The all have it infamy…” Apologies to Kenneth.

    It all becomes clear now as the cavalry comes over the horizon to rescue the ragged band from themselves.

    It`s the Old Firm back in the saddle and in charge of the Republic formerly known as Cyprus.

    CM report, July 1: Erdogan expected in the north on July 9 “. And who better than the Archbish to join forces and hands to take over the whole shooting match, the ArchBish and his boys to scoop 10% off the tax take just like the good old days of the Ottomans when they never had it so good and Recep to spank those wanna bees into shape at last. A duet of Recep and the Arch Bish singing ” When we were Fab…..”

    • SuzieQ

      Steady on. Where are your pills?

      • Barry White

        The dog ate them.

    • flange

      wrong dosage again?

    • The Truth

      Don’t do that the GC win spin it a a FACT

  • alexander reutersward

    will it spread to the other banks, that’s the question..

    • Costas Apacket

      Hopefully.

      It’s time the usual suspects realised the extent of their folly.

  • Douglas

    Fantasy Island continues onwards but not upwards with this Foley,who picks up the bill at the end I wonder ?

  • Alkis

    A CO-OP manager told me recently that NPL’s increased dramatically after the laws were passed for the protection of main residence. Our politicians know this but they still protect loan defaulters.

  • Barry White

    The Captain has left the flight deck with the girls and the golden parachutes, the plane is in a steep dive, the cockpit voice alert system is shouting: “Whoop, whoop, Pull Up, Pull Up…” but the band plays on with nary a spilled Frappe. It`S Cyproooos !!!!