ALTHOUGH the economy is on the road to recovery, concerns about non-performing loans have not receded. While we avoid discussion of the problem in Cyprus, visiting officials from the European Commission, the ECB and the IMF always make a point of highlighting the problem and the need of dealing with it more effectively. The reasons are obvious and need no explaining.
Despite the resistance, by the political parties, determined to prevent the passing of the foreclosures law, the legal framework giving the banks more legal tools for dealing with bad loans has been in place for almost two years. Results have not been very good. According to ECB figures, the Bank of Cyprus has by far the best reduction rate for 2016. It was 21 per cent, compared to 12 per cent for Hellenic Bank and a meagre 5 per cent at the state-owned Co-operative Bank.
For the Co-op Bank, the reasons relate to the status of the organisation, which went from being owned by its members to being owned by the state. Both are bad owners. The former, with direct links to the political parties encouraged mismanagement and corruption because they had nothing to gain from a well-run organisation. It suffices to say that the politicians had a poisonous influence over the co-ops, which they used to exert influence and win votes.
The problem has not gone away since the state took over the operation, pumping close to €2 billion of the taxpayer’s money into it. Its management has been unable to shake off the influence of the politicians who feel they have a right to interfere in the decision-making of a state-owned organisation, trying to tackle NPLs.
This is not the only reason preventing the reduction of NPLs. Equally important is the lack of know-how for dealing with NPLs at the Co-op. This is why it should follow the example set by Hellenic Bank and bring in foreign company with expertise in bad debt collection. Hellenic recognised that the rate of reduction of NPLs would be speeded up by bringing in a company specialising in this type of activity and it went into partnership with the Czech company APS Holdings. Despite protests by the union, the joint venture began operations eight days ago.
The Co-op Central Bank should also consider this possibility, if it is to reduce NPLs at a higher rate than 5 per cent a year. Of course, the main shareholder, the state, would need to sanction the move, which will no doubt encounter opposition from the political parties which would want to protect Co-op customers.