ACCORDING to political party myth, a myth which nobody ever dared challenge, co-operative banks had a “human face”, were “charitable” and helped “ordinary people.” This was the reason the co-op movement had to be protected and preserved, we were constantly told by our wise politicians who exercised an unhealthy degree of control over these badly managed and corrupt financial institutions.
The former Governor of the Central Bank, Panicos Demetriades, while publicly bashing the reckless management of the commercial banks insisted that co-ops were sound and healthy organisations. Being an Akel appointee, the former governor had to praise these financial institutions, many of which were directly controlled by the communist party through its placemen, because they had a “human face,” as the former chairman of the movement never tired of telling us.
This myth eventually collapsed when it became evident that the co-ops would need €1.5bn to be re-capitalised. The money would be covered by a troika loan which the future generation will be burdened with for many years. Things seem to be getting worse as the non-performing loans (NPLs) of the co-op sector are still rising, in contrast to the banks, according to the latest figures released by the Central Bank.
Most of these loans were not given to developers and hoteliers but to individuals and households, which presumably explained the “human face” tag; of these, 53.3 per cent are NPLs – up from 49.8 per cent in February – while the percentage for consumer loans was even higher. These are probably the people the political parties want to protect, by making a fuss about the protection of the primary residence which are supposedly under threat from the banks.
Yet the reality is that the banks are certain to go after businesses with big loans and not the small householders. The co-ops, in contrast, will have to go after the “ordinary people” who are debited with the bulk of the NPLs. A sizeable number of ex-Laiki employees have been hired to deal with loan recoveries, the lax co-ops having no need for employees with such an expertise in the past.
And who would the new recoveries’ department go after? The “ordinary people” that were allowed to build up their borrowing over the years irrespective of their ability to repay their loans. There is no doubt that the co-ops would lose their “human face” in the coming months in order to survive; there have already been reports in the press about co-ops turning the screw on customers unable to service their loans.
The ordinary people will have to learn the hard way that credit institutions with “a human face”, which base their decision on kindness and charity, have to turn nasty at some point, to avoid bankruptcy.