By Staff Reporter
CYPRUS’ CO-OPERATIVE Credit Institutions (CCI) will now focus on recovering non-performing loans, which stand at 40 per cent of their loan portfolio, as part of the restructuring process, head of the Central Co-operative Bank (CCB) Nicolas Hadjiyiannis said yesterday.
Hadjiyiannis yesterday presented the CCB’s road map listing key actions to be taken in the next three months as requested by the troika, including the appointment of a new Executive Director, bolstering independence and qualifications of the CCI boards, retaining its customers, containing asset deterioration and preparing the transfer of non-performing loans to specialised units within the cooperative sector.
“Essentially the co-operative credit sector will operate as a single banking group,” he said, adding that following the conclusion of its restructuring, the CCB will operate as a holding company with 18 associated CCIs, reduced from 94.
Hadjiyiannis said the co-ops will focus on recovering non-performing loans, currently 40 per cent of the CCI’s total loan portfolio of €13 billion, and will set up a central unit to manage loans in arrears.
“Loans that were given should be repaid; they have not just been given away,” he said.
He noted that the co-ops do not have exposure to large corporate loans as is the case with the island’s commercial banks, but it has granted loans in the retail sector and loans to small and medium-sized companies.
He divided borrowers into three groups: those that can pay but don’t; those facing problems; and non-viable borrowers.
Hadjiyiannis called on borrowers in a position to repay their loans to start doing so. For the second category, the co-ops are ready to cooperate with troubled borrowers to find solutions, while provisions for loan impairments will also be recorded for the third group.
With regard to property repossessions, he said the co-ops will show sensitivity on property seizures. “Repossession is the last step in a non-performing loan. Our goal is not to proceed with individual repossessions but at the same time we owe it to the country to take all the necessary steps to secure the interests of the co-operative sector,” he said, adding, “We will follow best banking practices with sensitivity”.
Hadjiyiannis also noted that co-ops will proceed with a salary reduction of 15 per cent as prescribed by the restructuring plan as well as a targeted voluntary retirement scheme.
The House Institutions Committee yesterday heard that co-op loans to local authorities stand at €400m, many of which were guaranteed by the state. For many, repayments only started in December 2012.
DISY MP Andreas Kyprianou warned that there was a huge risk these loans would become non-performing. He also said further investigation was needed into the huge loans given to executive and non-executive members of the co-operative movement, with a closer look needed into the rates of interest given and whether sufficient collateral was secured in each case.
Using part of the €10 billion international bailout secured last March, the government has approved a €1.5 billion capital injection to cover the co-ops’ estimated capital shortfall, acquiring 99 per cent of its share capital.
The €1.5 billion capital injection has already been disbursed by the troika in the form of a bond and is currently deposited in a Central Bank of Cyprus account. It will be granted to the co-ops following approval of the sector’s restructuring plan at the end of January by the European Commission’s Directorate General on Competition.
Hadjiyiannis said the co-ops will use the bond to acquire additional liquidity from the European Central Bank.