By Sinead Kelly
SENIOR bankers yesterday called for swift reform of the legal framework on repossessions in order to assist commercial banks to pressure borrowers into repaying their loans.
“NPLs (Non-Performing Loans) in Cyprus are by far the worst in Europe. NPLs are the single largest impediment to not only the banking sector but the economy,” John Patrick Hourican, CEO of Bank of Cyprus, told the 4th Nicosia Economic Congress.
“And whilst we should not repossess capital and flood the market with it, it is nevertheless necessary for the law to allow us to do it to create moral hazard. We need to put that in place: it constitutes an important functioning arrangement between a bank and its customers.”
Hourican added that state legislation should immediately be put in place to allow banks to adequately address NPLs.
“Strategic default is not acceptable. Banks will, of course, be held to a code of ethics to ensure that we wield that power with care,” he said.
Cyprus received a €10bn bailout from the EU and the IMF to avert a meltdown of the island’s oversized banking system. But non-performing loans currently account for around 50 per cent of all loans, and debt restructuring is considered by Cyprus’ lenders as crucial to the success or failure of the island financial adjustment programme.
George Appios, CEO of Piraeus Bank Cyprus, said the Central Bank of Cyprus has issued a directive on the management of arrears and the approach to debt restructuring, but the banks have no robust repossession legislation at their disposal.
Appios said that one of the imbalances of the banking system is the funding gap. With €62bn in loans and €46bn deposits the funding gap is €16bn which, combined with the liquidity reserves the banks have to keep, raises increases the liquidity gap to €25bn.
Marios Clerides, CEO of the Cooperative Central Bank, bailed out by the Troika to the tune of €1.5bn, blamed politicians for the poor restructuring of bad loans.
“The political system is selling protection to the borrowers. Who is going to pay for those loans. Will the guarantors, will the bailed in depositors of BOC have to bear these losses, or are we suggesting new haircuts?” he asked, adding that “political decisions have been taken without proper analysis of the full impact.”