State-owned Cyprus Asset Management Company (Kedipes) has reached a preliminary agreement with Hellenic Bank to terminate the Loan Guarantee Scheme (LGS) and repurchase a portfolio of non-performing loans (NPLs).

The agreement also provides for the termination of all associated obligations and compensation guarantees related to the 2018 Asset Transfer Agreement.

That agreement facilitated the sale of the former Cyprus Cooperative Bank’s operations to Hellenic Bank.

In a statement, Kedipes said that the transaction, once completed, will reduce credit and liquidity risk while largely containing the cost of the Loan Guarantee Scheme within the €155 million baseline scenario estimated in 2018.

Kedipes chairman Lambros Papadopoulos stated that the deal constitutes a “significant milestone” for the company.

According to the company, the final agreements are expected to be signed in June 2025, pending approval by the Finance Ministry and the European Commission in relation to the commitments list.

The completion of the transaction will also require the consent of supervisory authorities and is anticipated by the end of 2025.

Upon completion, all guarantees provided by the Republic of Cyprus to Hellenic Bank in 2018 will be terminated.

The Loan Guarantee Scheme, in effect until 2030, offers Hellenic Bank protection for 90 per cent of credit losses on loans with a contractual value of €2.60 billion and a reference value of €2.27 billion as of the scheme’s launch. The reference value represents the amount covered by the scheme.

As of September 30, 2024, the contractual value of the assets under the scheme had dropped to €1.20 billion—a 54 per cent reduction—while the reference value stood at €920 million, reflecting a 59 per cent decline since inception.

The preliminary agreement outlines that the termination of the scheme will be based on the status as of September 30, 2024.

It also finalises payments made under the scheme up to that date. These include €102.7 million from Kedipes to Hellenic Bank related to submitted claims, and €45.1 million from Hellenic Bank to the Republic of Cyprus, the guarantor of the scheme.

As part of the deal, Kedipes will repurchase non-performing loans with a contractual value of €361 million from Hellenic Bank for €180.2 million.

The loans primarily consist of a retail banking portfolio secured by first mortgages totalling €553 million.

In addition, the preliminary agreement provides for a payment of €17.5 million from Kedipes to Hellenic Bank for the termination of the scheme, including performing loans.

A further €10 million will be paid by Kedipes to Hellenic Bank to settle obligations and compensation guarantees tied to the original Asset Transfer Agreement.

Papadopoulos explained that the €27.5 million in payments planned under the transaction align fully with Kedipes’ recently updated business plan.

He also said that “the long-term impact of the transaction on results and cash flows is expected to be positive, although in the short term, the rate of state aid repayment will decline”.

The repurchase of loans, he added, will enable Kedipes “through their management, to recover part of the €102.7 million paid under the Loan Guarantee Scheme”.