Hellenic Bank, resting on its high liquidity, aims to grow its loan portfolio in the medium term and explore ways to invest its liquid assets, the bank`s Chief Executive Officer Bert Pijls has said, noting that the bank aspires to more than double its new lending in 2015 compared with the previous year.
In an interview with CNA, Pijls, who officially assumed his duties as the group`s executive chief in mid-January, says the bank “in theory” could also engage into buying loan portfolios but makes clear that he is not involved in such type of conversations, as there is no legal framework in place that could facilitate such transactions.
He believes that lending rates in Cyprus will start to come down as deposit rates decline.
Owing to prudent banking policies, Hellenic Bank, the island`s third largest lender, emerged unscathed from Cyprus’ financial meltdown of 2012 which prompted the government to apply for financial assistance from the EU and the IMF. The bank covered its potential capital shortfall from the private sector and did not request government aid.
“We have been a relatively conservative bank and as a result we were neither bailed in nor bailed out. We want to maintain that level of conservatism when it comes to our liquid assets and we are looking at opportunities to maybe invest our liquid assets slightly differently but within the prudent management the bank has always had in the past,” Pijls said.
As a result, Pijs added, the bank has seen its deposit base rising steadily in 2014 and in 2015.
Describing the bank’s high liquidity as “a challenge”, given the low demand on credit at the backdrop of a three and a half-year economic decline in Cyprus, as well as the ECB`s decision to implement negative rate to excessive capital, Pijls said he is feeling “pretty good about it.”
“When there is uncertainty, it is better to be liquid. Being liquid means we are strong, liquidity means we have an opportunity to grow,” he said.
The Dutch banker said the most important medium-term target is to grow the bank`s loan book and explore ways to invest their liquid assets.
“Step one is loans and step two is to invest our liquid assets a bit more advantageously without taking on levels or risk that are not prudent,” he noted.
Recalling that the Bank in collaboration with the European Investment Bank launched a €70 million cheap corporate loans scheme with an interest starting from 3%, Pijls said the scheme attracted loan applications of €45 million in just two weeks.
Asked if the bank is considering acquiring loans from other banks, Pijls made clear that he is not currently involved in any such type of conversations, adding that there is no legal framework in place that would clarify issues such as the consent of the borrower, the hierarchy of security and personal data protection.
“However if you were an analyst and look at our bank and look at our liquidity, in theory if a portfolio were up for sale, yes we would be probably one if not the only local institution that has the balance sheet to actually look at these types of transactions,” he went on to say.
The CEO said he is very confident that the bank will double its lending in 2015 over 2014 but cautioned that the absence of a proper legal framework on foreclosures, which is currently the thorny issue of Cyprus` economic adjustment programme, could hinder new lending as well obstruct the recovery of the real estate sector.
“If you don`t have a proper legal framework in place, it just makes new lending more difficult. It also means it is more difficult to attract foreign investment to come in to the market, that could be directly to the market or foreign investment funds wanting to invest in real estate in Cyprus.
Investors do not like uncertainty and a proper legal framework which will be here for the long-term will open up the market and make people come back. This is critically important,” he said.
Pijls dismissed fears that the banks will engage in large-scale repossessions once the foreclosure framework is in force.
“I have no intent to flood the market with properties and put families with children out on the street. I understand the part of our social responsibility,” he stressed, noting that the law would act as a tool to help convince borrowers to engage pro-actively with the bank to work out a restructuring deal and combat strategic defaults.
“If there is a blatant case of a strategic default, when we know a borrower has the ability to pay and he is not paying, yes we will use the foreclosure law and I think that is the socially correct thing to do. Strategic defaulters put deposits at risk,” he explained to CNA.
Pijls described fears voiced by politicians that banks would pursue massive foreclosures as an exaggeration, noting that if the bank were to act like this, lawmakers could simply change the law. “But at least we should be given that opportunity to show the market that we know how we use this tool,” he said.
For Pijls the legal framework on foreclosures is also a prerequisite for the recovery of the real estate sector, which in turn is crucial for the Cypriot economy`s recovery, as it could trigger transactions between banks and non banks on properties.
“There needs to be certainty. If you look at countries that have recovered from real estate crisis, such as Ireland it is because transactions are happening, interbank and potentially between banks and non-banks,” he said.
On loan restructuring, Pijls said that the majority of the bank`s loan book is at some stage of restructuring, but he noted that he is not in favour of what he called “cosmetic restructuring.”
Restructuring, he noted, should be implemented on a customer by customer basis in order to achieve a long-term restructuring and not grant simply a grace period.
The CEO pointed out that the restructuring process as set out by the CBC`s restructuring directive entails a lot of administrative work which slows down the process, while it allows the borrower to block the process by not providing the necessary data.
Furthermore, Pijls said he agrees with the CBC` loan origination directive, as the practises of the past cannot continue, but “a better concept of materiality” should be considered, in the sense that a retail borrower cannot be called on to fill the same amount of documents as a large corporation.
“We should not let every small loan to have the same number of documentation as a huge loan,” he added.
Pijls recalled the bank`s intention to be listed on the Athens Stock Exchange, adding that he expects the bank`s shares to start trading by the second quarter of the current year.
“It is important for us to create more liquidity in our shares, it is in the share holder`s interests. The two stock-exchanges are on the same platform. This is beneficial for our shareholders,” he said.
On the economy, Pijls described the prospects of the Cypriot economy as encouraging, noting however that prospects depend on external factors such as developments in Greece, Russia and the region.
Noting that more can be done to stimulate growth, he suggested that the authorities should consider abolishing the 8% transfer tax on real estate as well as the 20% capital gains tax that would encourage transactions.
“What we need, for the real estate market to bottom out is transactions,” he told CNA.
Moreover, he noted that Cyprus should follow the cases of Luxembourg and Malta to attract fund administration, given the island`s “excellent” legal, tax and audit firms.
He also pointed out that the tourist season should be extended through a combination of incentives to airlines and tour operators, as well as incentives to upgrade the tourist product offered to visitors.