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Bank of Cyprus ‘better positioned’ after NPL sale – Moody’s

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Moody’s praised the sale of the Bank of Cyprus “Helix 2” package of non-performing loans in a note released on Thursday.

“The sale will significantly reduce the bank’s stock of legacy problem loans and better position it to deal with an inflow of new problem loans as a result of the coronavirus pandemic,” the note said.

Moody’s has repeatedly expressed concern about the stock of NPLs at all Cyprus banks, so the note is a real indication of progress.

The Bank of Cyprus had indicated that preparation for further appearance of NPLs during the pandemic is an important part of its strategy in arranging the sale, despite difficult economic conditions.

Helix 2, was sold to the US bond fund PIMCO, one of the world’s largest investment managers with $1.78 trillion assets under management. Helix-2 has a gross book value €545 million. It reduces the NPL ratio at the bank to 16 per cent. The total value of NPLs sold was €916 million.

Sources at the Bank of Cyprus said that an effort is underway to reduce the ratio of NPLs to single-digit levels. “We will continue to assess the potential to accelerate the decrease in NPEs on our balance sheet through additional sales of NPLs in the future,” Bank of Cyprus CEO Panicos Nicolaou said in a statement when the completion of the sale was announced.

Overall, the pro forma NPE reduction for 2020 amounted to €2.1 billion, reducing total NPLs to €1.8 billion  including Helix 2 (Portfolios A and B) and an organic NPE reduction of €600 million.

The end of government measures to support the Cyprus economy is expected to lead to a number of business failures that will be accompanied by non-performing loans, Moody’s says. There is also concern about the suspension of loan instalments in December 2020, the largest such in Europe. It is difficult to forecast what may happen once the suspension is finally lifted, Moody’s warns.

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