By Stelios Orphanides
Cypriot banks delivered a mixed performance in the second quarter in restructuring bad loans as they exceeded two benchmark indicators set by the Central Bank of Cyprus and failed the remaining two, the supervisory authority said.
“The analysis carried out by the Central Bank of Cyprus and the discussions with banks reveal the continuing delay in the process of examining requests for restructurings caused by factors such as the failure of borrowers to submit timely and adequate information on their income, the time spent in discussions with customers before they can finalise a restructuring proposal and, in some cases, setbacks from borrowers changing their minds on a restructuring offer to which they had initially agreed to,” the central bank said in a statement on its website on Wednesday. “Banks continue to take measures to improve their restructuring performance and be able to meet the targets set”.
The banks, whose non-performing loans make up roughly half of their portfolio and threaten the performance of the economy, increased the rate of proposed sustainable restructurings to 25.38 per cent at the end of June which exceeds the supervisor’s 14.79 per cent benchmark by 10,59 percentage points, the central bank said.
The second indicator that reflects the ratio of cumulative sustainable solutions compared to the overall value of 90-days-past-due loans, rose to 16.23 per cent per cent in June exceeding so the supervisor’s requirement by 0.99 percentage points, the central bank said.
On the other hand, banks failed marginally in meeting the third indicator of restructured loans less than eight days in arrears as it rose to 72.38 per cent in June compared to a benchmark of 72.43 per cent, the supervisor said.
Things were even worse with the fourth indicator of loans which were in arrears for more than 30 and less than 90 days at the beginning of the but were no longer in arrears at the end of the three-month period, the central bank said. The ratio was in June 32.26 per cent compared to a benchmark of 43.22 per cent.
While banks are in position to prevent loans with less 90 days in arrears from becoming non-performing, they are less able to reduce their arrears to zero days, the central bank continued.
“During the second quarter of 2016 the amount of the loans which are subject to the targeting framework decreased by about €1bn compared to a decrease of €900m during the first quarter of 2016 and €1.2bn in the fourth quarter of 2015,” the supervisory authority continued. “The success of some restructurings depends on the ability to realise the collateral held against the non-performing loans within the timeframe agreed”.