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Our View: Full recovery for the co-op banks looks almost impossible

The board of the Cyprus Co-operative Bank (CCB) decided not to go ahead with the sacking of 17 employees who were refusing to repay loans they had taken from the bank. There was something surreal about the bank having debt defaulters among its staff (there were 100 in total) and not being able to make them pay up. Were these workers also responsible for pressuring customers with NPLs to restructure their loans or initiating foreclosure action?

Presumably, it would have been unlawful for the bank to take a percentage of the monthly salary of each defaulter as repayment for the loan, because if it were not, what stopped the bank from doing so? Was it showing the ‘human face’ of the co-op movement or did management feel it could not go after workers given that the former top brass of the co-ops had borrowed millions they were not repaying?

The truth is that the co-op banks, for decades, were a free for all, plundered by staff, customers and politicians who borrowed money with no intention of ever paying it back. As long as the annual interest on loans was covered the co-op was usually content. As the politicians often liked to say, the co-ops were ‘people-friendly’, too unintelligent to realise that this was a recipe for disaster. And once disaster struck, the only way to keep the co-ops afloat was through a €1.7 billion cash injection from the taxpayer.

The problem is that despite this injection of cash and the rationalisation of operations through the merging of all co-op entities and shedding staff the CCB is still in trouble, having had the least success in lowering its NPLs, which still make up 50 per cent of its loan portfolio, amounting to €6.4 billion. A company specialising in recoveries was brought in by the CCB in January to help reduce NPLs, but it is too early for results.

The problem for the CCB is that its customers were small businesses and individuals, many of whom used their homes as security for loans. Could a state-owned bank start re-possessing defaulters’ houses or foreclosing the premises of small businesses? In theory, yes, but in practice no government would dare back such moves, because of the political cost.

The sacking of 17 workers for not repaying their loans would not make the slightest bit of difference to the bank’s prospects, but it was a point of principle. Yet even in this straightforward matter the CCB was obliged to backpedal, revoking its decision less than 24 hours after it was announced, presumably for political reasons. The unions took up the cause, probably pressured the government, and in no time the sacked workers were told to return to work.

Operating in these circumstances, it is difficult to see how the CCB will make a full recovery.


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