Bank of Cyprus (BoC) chief executive officer John Hourican said Cyprus’s largest lender was happy with the current foreclosure and insolvency legal framework as a tool of reducing non-performing loans.
“We have stability in legislation and we are satisfied with that,” Hourican told reporters in Nicosia on Wednesday, hours after the bank announced a €64m net profit for 2016 and a drop in non-performing loans for a seventh consecutive quarter.
While all positive changes in legislation are welcome, the European Central Bank attested that Cyprus has all necessary things to tackle bad loans in place, he said.
The island’s foreclosure and insolvency framework was updated at the behest of Cyprus’s international creditors who had included it in the 2013 bailout terms. It was enacted in August 2015.
Last year was a “major year” in reducing non-performing loans, Hourican said, adding that reducing bad loans, which account for more than half the bank’s loan portfolio, “will take another couple of years”.
“We are still an absolute outlier,” he added. “The Cyprus non-performing loan stock is the highest in Europe. We should remember what happened; there was a structural break in the economy”.
Last year, the bank reduced its non-performing loan stock to €11bn, or 54.8 per cent, of total loans with 90 days past due loans amounting to €8.3bn, or 41.3 per cent. The bank’s non-performing loans fell by €2.9bn last year.
Hourican said that by comparison, a drop in non-performing loans in the range of €1bn in Cyprus is equivalent to €80bn in Italy. “So we did €860m of reduction in the fourth quarter, it’s like moving €70bn in Italy”.
“We think the results present a positive new story for the group and continue the delivery of the promise to return the bank to its strength, but also to make it valuable to its shareholders,” Hourican said. “There is more work to do. I think it’s very important that people should not think this job is done”.
Hourican added that the bank did not plan to outsource the handling of its non-performing loans to a subsidiary, as Hellenic Bank did with APS Holding.
The Irish banker, who joined the bank in late 2013, months after it resorted to converting uninsured deposits into equity, said that the bank’s “shrink to strength” strategy which involved the disposal of its non-core assets in other countries such as Russia, Ukraine, Romania and Serbia, was successful as it allowed the lender to deploy its excess balance sheet in the Cypriot economy.
Certain parts of the bank’s book, such as lending to the “overleveraged” consumer, may also shrink, he continued.
Hourican added that in the case that demand for loans picks up, the bank is ready to lend more and also “grow a little bit” the UK business “carefully and judiciously”.