FINANCE Minister Harris Georgiades, in the last couple of days, has been explaining the government’s latest plans for the Cooperative Central Bank (CCB). It is difficult not to be sceptical about these, given the government’s dismal record on the CCB, on which spent a staggering €4.2 billion of the taxpayer’s money to keep afloat, money that it does not look like it will ever recover.
The government’s latest plan involves the preparation of amendments that would tighten the insolvency and foreclosure laws and make it easier for the banks, in particular the CCB, to tackle non-performing loans (NPLs), which remain perilously high. It would also set up a loan administration company to try to recover some of the CCB’s NPLs, which currently stand at about €6.2 billion. The management of this company will be outsourced, said the minister while giving assurances that no bad debts would be written off.
He felt obliged to say this, because the widely-held view is that if the NPLs of the CCB remain under state ownership, very few of the defaulters would repay them, even if the loan administration company is run by a private company. The government has invited offers for the purchase of the CCB, but does not expect any of the financial institutions that expressed an interest to want to take the bad debts portfolio. Local banks have expressed an interest in the healthy loan portfolio of the CCB, which they would incorporate in their own operations, thus improving their own portfolios.
Not surprisingly, the state will be stuck with the NPLs, but that would not be the end of the problem. The CCB currently employs 2,500 people, many of them with only basic banking skills. None of the banks bidding for the CCB’s healthy operation would want to hire this staff and increase their wage-bills. So what would happen to these workers? Would they remain as employees of the state-owned loan administration company, despite of their very limited skills in dealing with bad debt recoveries? Nobody at the co-ops was trained in loan recoveries and dealing with debt defaulters, as we know and this has contributed to the failure of the CCB to reduce its NPLs.
The likely scenario is that the healthy operations of the CCB will be taken over by a local bank and the state will be left with €6.2 billion worth of NPLs and a payroll with 2,500 employees, most of whom will not be of any use to the managers of the loan administration company. And that is assuming the government would find anyone prepared to take over the management. Georgiades hopes to recover some of the money spent on the CCB, but we suspect the taxpayer’s losses could rise.