The governor of the Central Bank Chrystalla Georgadji, pointed to banks to increase their provisions for problematic loans sending them at the same time a clear message to show the necessary consensus as regards the issue of NPLs.
Addressing the parliamentary finance committee, Ms. Georgadji stressed the need for the banks to increase their provisions as they are less than what they should be.
However, she explained that "this is the case due to the way loaning was performed in the past decades, that is the extension of a loan on the basis of collateral and not on the real ability to repay it and the loan holder's cash flows.
"In Cyprus we were giving loans on the basis of collateral which is there but unfortunately is not taken into consideration in provisions", she noted.
The governor explained that "certain problems which stem from NPLs, will be found on our way when controls by the European supervisory mechanism are done."
She noted that a 10% decline in NPLs will be achieved within a time horizon of three to five years, based on studies of CB technical consultants.
According to Mrs. Georkadji, the reduction of NPLs will be dealt with given that economic growth rate reaches 3%.
She suggested that preliminary CB data show that for 70% of NPLs there can be an explanation why they are not being served, while 20% of the loans are not being properly repaid as their holders choose to do so.
She reiterated that NPLs can be tackled with development, stressing that CB took “measures to exert pressure on banks since we have a legislative framework."
She noted that the CB has set targets for banks, noting that they are required to inform CB on a quarterly basis, on the progress of restructurings and non-performing loans and their compliance with the objectives set.
First results are not encouraging, she added.
Interest from NPLs should not be capitalized
Responding to a question by the president of the finance committee Nikolas Papadopoulos regarding the interest on NPLs, Ms. Georgadji said that banks partially follow this practice based on international standards.
Sending a strict message to the banks she called them to show the necessary consensus regarding NPLs noting that "we will find these in our way in the near future when SSM performs fresh tests. We are examining ways so as for these interest not to be included in banks' capital".
NPLs course has reversed
Ms. Georgadji appeared optimistic regarding the course of treating of NPLs noting that the course of NPLs has reversed.
NPLs totaled €27,3 bn as at September 2015.
She said that till September, €14 bn of loans were restructured noting that €10,5 bn of restructured loans are still included in NPLs due to the definition of NPLs.
She noted that restructurings increased in the third quarter of 2015 by 58% compared to the corresponding period of last year.
According to Ms. Georgadji this year business loans increased for the first time in three years by 3,1% while an increase in housing loans is also being registered.
"The increase of lending from the banking sector to households and especially to businesses and the productive sectors of the economy is necessary" she said.
In spite of these, she admitted that demand for loans is subdued.
CB directive on loans simplified
Ms. Georgadji referred to the intention of CB to simplify the directive on granting loans.
She stressed the need to simplify the directive, noting that CB instructions are invoked because of the reluctance of some officials to take responsibility.
Good relations with the president
Responding to questions, she noted that she has a very good relationship with President Anastasiades stressing that she must have a good relationship with the President of the Republic.
As regards the controversial issue of loans in Swiss franc and demands raised by affected borrowers, the CB governor said that there have been meetings with banks’ leaderships noting that a solution was found which protects mortgage loans up to a specific amount.
Interest rates a difficult issue
Referring to interest rates she said that they are high and that they are a very difficult issue, adding that very high deposit rates pose risks. There are efforts to achieve a balance between lending rates and deposit rates, as she said.
According to the CB Governor, several million euros are outside banks, noting that if the tax on deposits was reduced, then millions would return to the banks.
She added that as part of the investigation on the scandal about the collapse of the economy, the CB has sent a report on the two banks, to the legal department.
She also noted that there is enough room for banks’ capital indicating that they should not be complacent.
Ms. Georgadji said that as of January 1, 2016 the control of the four systemic banks, bank of Cyprus, Hellenic bank, Coop and RCB will be done directly by the European supervisory mechanism.
She also noted that from next year, a consolidation fund will become operable, in which 0,8% of deposits will be deposited.
She announced that a new software will shortly operate, which will give the ability to loan holders to input their data and automatically receive advices on better restructuring their loans so as for them to be knowledgeable in negotiating with their bankers.
Addressing the parliamentary finance committee, Ms. Georgadji stressed the need for the banks to increase their provisions as they are less than what they should be.
However, she explained that "this is the case due to the way loaning was performed in the past decades, that is the extension of a loan on the basis of collateral and not on the real ability to repay it and the loan holder's cash flows.
"In Cyprus we were giving loans on the basis of collateral which is there but unfortunately is not taken into consideration in provisions", she noted.
The governor explained that "certain problems which stem from NPLs, will be found on our way when controls by the European supervisory mechanism are done."
She noted that a 10% decline in NPLs will be achieved within a time horizon of three to five years, based on studies of CB technical consultants.
According to Mrs. Georkadji, the reduction of NPLs will be dealt with given that economic growth rate reaches 3%.
She suggested that preliminary CB data show that for 70% of NPLs there can be an explanation why they are not being served, while 20% of the loans are not being properly repaid as their holders choose to do so.
She reiterated that NPLs can be tackled with development, stressing that CB took “measures to exert pressure on banks since we have a legislative framework."
She noted that the CB has set targets for banks, noting that they are required to inform CB on a quarterly basis, on the progress of restructurings and non-performing loans and their compliance with the objectives set.
First results are not encouraging, she added.
Interest from NPLs should not be capitalized
Responding to a question by the president of the finance committee Nikolas Papadopoulos regarding the interest on NPLs, Ms. Georgadji said that banks partially follow this practice based on international standards.
Sending a strict message to the banks she called them to show the necessary consensus regarding NPLs noting that "we will find these in our way in the near future when SSM performs fresh tests. We are examining ways so as for these interest not to be included in banks' capital".
NPLs course has reversed
Ms. Georgadji appeared optimistic regarding the course of treating of NPLs noting that the course of NPLs has reversed.
NPLs totaled €27,3 bn as at September 2015.
She said that till September, €14 bn of loans were restructured noting that €10,5 bn of restructured loans are still included in NPLs due to the definition of NPLs.
She noted that restructurings increased in the third quarter of 2015 by 58% compared to the corresponding period of last year.
According to Ms. Georgadji this year business loans increased for the first time in three years by 3,1% while an increase in housing loans is also being registered.
"The increase of lending from the banking sector to households and especially to businesses and the productive sectors of the economy is necessary" she said.
In spite of these, she admitted that demand for loans is subdued.
CB directive on loans simplified
Ms. Georgadji referred to the intention of CB to simplify the directive on granting loans.
She stressed the need to simplify the directive, noting that CB instructions are invoked because of the reluctance of some officials to take responsibility.
Good relations with the president
Responding to questions, she noted that she has a very good relationship with President Anastasiades stressing that she must have a good relationship with the President of the Republic.
As regards the controversial issue of loans in Swiss franc and demands raised by affected borrowers, the CB governor said that there have been meetings with banks’ leaderships noting that a solution was found which protects mortgage loans up to a specific amount.
Interest rates a difficult issue
Referring to interest rates she said that they are high and that they are a very difficult issue, adding that very high deposit rates pose risks. There are efforts to achieve a balance between lending rates and deposit rates, as she said.
According to the CB Governor, several million euros are outside banks, noting that if the tax on deposits was reduced, then millions would return to the banks.
She added that as part of the investigation on the scandal about the collapse of the economy, the CB has sent a report on the two banks, to the legal department.
She also noted that there is enough room for banks’ capital indicating that they should not be complacent.
Ms. Georgadji said that as of January 1, 2016 the control of the four systemic banks, bank of Cyprus, Hellenic bank, Coop and RCB will be done directly by the European supervisory mechanism.
She also noted that from next year, a consolidation fund will become operable, in which 0,8% of deposits will be deposited.
She announced that a new software will shortly operate, which will give the ability to loan holders to input their data and automatically receive advices on better restructuring their loans so as for them to be knowledgeable in negotiating with their bankers.
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