Accelerating the reduction of non-performing loans continues to be a key objective, a senior Central Bank official said Saturday, noting however that a new legal framework that could have helped is largely unenforceable.
Acting Senior Director, Supervision Division, Yiangos Demetriou, said NPLs at the end of last year were around €20bn, down €4bn from the previous year and €7bn from 2014.
Speaking at a roundtable discussion organised by the economists’ association, Demetriou said the reduction was “remarkable but it must be accelerated.”
The Central Bank official said the loan restructuring rate has slowed down in recent months “perhaps a sign that the NPL portfolio that has not been restructured to date is harder to resolve only through restructuring.”
Demetriou said it was the supervisor’s belief that the new legal framework – foreclosures, insolvencies, sale of loans — put in place after 2013 has become largely unenforceable. He said the CB has prepared a study and a report conveyed to all parties involved, listing the weaknesses of the legislation and other obstacles to the swift resolution of NPLs.
Banks and borrowers should proceed with courageous and decisive solutions with any losses shared by the two sides where there was no other way of resolving the problem, he said.
“Delay in resolving the problem is against both parties,” he added.
Demetriou said the current NPL level hindered the growth of banks because it reduced their profitability and depleted their capital and other resources.
In turn, banks cannot finance the country’s recovery through new loans.
The island’s banking sector has shrunk following the 2013 crisis but it was still quite big.
Total assets, including overseas, at the end of 2012 had reached €123bn whereas at the end of 2017 they were down to €67bn.
Despite the steep reduction, it represents 350 per cent of the country’s GDP.