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Loan restructuring to slow for stress tests

LOAN restructuring will slow down until the European Union’s bank stress tests are completed, Central Bank Governor Chrystalla Georghadji said on Tuesday.

Banks are busy restructuring amid a steep rise in non performing loans (NPLs) but according to the CBC boss, the process will stagnate until the EU-wide stress tests are completed in the autumn.

Banks said recently they have restructured some €12 billion worth of NPLs, or 27 per cent of the total amount borrowed in Cyprus.

Georghadji warned that it was a big mistake on behalf of borrowers to not service their loans believing they will avoid paying their dues.

The absence of a legal framework to enable banks to seize and sell properties swiftly has encouraged many to stop servicing their loans – a strategic default.
The government is working on legislation to rectify the situation but in the meantime NPLs, now around 50 per cent, keep rising.

Before the European Central Bank takes up its new role supervising eurozone banks later this year it plans to run a series of rigorous tests to uncover any possible shortfalls on the lenders’ balance sheets to avoid any surprises once it has taken charge.

The stress tests will include the island’s four systemic banks, Bank of Cyprus, Hellenic, cooperatives, and the Russian Commercial Bank.

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