Non-Performing Loans: Where is the Middle Ground for Cyprus Lenders?
A significant repercussion from Cyprus’ 2008 financial crisis was the recent closure of the Co-operative bank; due in part to the strict punishments enforced by the Cypriot authorities, the bank was famously unable to recover financially and filed for bankruptcy.
Mr Kyrytopoulos Konstantinos, a Finance Professional from the University of Athens has made an opinion on the affect the closure may have on other Cypriot lenders and their attempts to deal with their non-performing loans, in attempts to avoid a similar fate.
He also spoke about Cyprus’ improving yet delicate position after coming last in Europe’s recent internal trust and competency surveys. “The island has made significant progress; however, it must go along way before it brings long-term steadiness back to its financial system by reducing non-performing loans and thereby restoring faith in its banks” he added.
The introduction of the ECB’s International Financial Reporting Standards (IFRS) 9 is a provision committed to speeding up the process of repaying non-performing loans within Europe and is looking to become a major challenge for banks in Cyprus. The increasing pressure has led lenders to start sending property foreclosure warnings which has stirred a Cyprus-based borrower protection group to complain about human rights.
Perhaps the islands’ lack of eagerness to adhere to new EU regulations is the reason for the government is proposing such strict measures in order to attempt to reduce non-performing loans; which experts have stated lacks long-standing vision and implementation.
Citing the findings of two recent academic papers, Mr Konstantinos notes some positive elements in the scheme that Cyprus should benefit from in the long-term; rather than ending up “rewarding” delinquent borrowers by writing off parts of loans in exchange for minimum repayments.
Namely, the provision only covers loans that were already classed a non-performing in September 2017; rather than those that became overdue later. Additionally, all subsidies are only claimable whereby borrowers have made successful repayments for a 12 month period, with all discounts becoming void if any payments are defaulted over the deadline.