Our View: Too many differing policies with regards to NPLs.
"In the case of hotels that go into administration, banks should provide guarantees to tour operators that contracts would be honoured in full," said ACTA. Failure to do this, could lead to operators reducing or cancelling the packages they were offering, it warned. These fears, which are perfectly understandable, are a direct consequence of the uncertainty that has been plaguing the economy for many months now. Nobody seems to know what will happen to struggling businesses that have not been repaying their loans and are at the mercy of banks, which in turn desperately need to reduce the bad debts on their books.
It is a big and complicated mess that does not look like being sorted out any time soon. On the contrary, the confusion grows by the day as a result of the mixed messages disseminated by the authorities, the different pressure groups, the media and the political parties. There are different agendas with a host of groups trying to protect their interests. There is the group of big developers with big loans arguing that the banks should go easy on them, a group representing individuals demanding rescheduling of loan repayments, a group representing depositors of Laiki trying to recover some of their money, not to mention the countless individuals that have filed law-suits against the banks.
Matters are made worse by the Central Bank of Cyprus (CBC) which instead of working at bringing stability to the banking sector appears to be doing the exact opposite. A month-and-a-half ago, the CEO of the Bank of Cyprus described the CBC's definition of NPLs as "foolish" and argued that if it was not changed it would prolong the recession because it trapped vast amounts of capital.
This is not the only way the CBC's Governor has been turning the screw on the banks. A little over a month ago, he told journalists invited to his office, for off the record briefings that he believed the banks would have to cut their loans in order to recover them (a voluntary hair-cut). This irresponsible prediction was immediately reported and encouraged people and businesses not to repay their loans in the vain hope that the banks and co-ops would give discounts when restructuring the repayments.
On Monday the head of the Borrowers Association accused banks and in particular co-ops of tricking customers with NPLs -- through false promises -- into agreeing to litigation, aimed at seizing their collateral, instead of first attempting to restructure the loan. This contravened the CBC's directive on arrears management which set out the procedures to be followed by the banks in restructuring NPLs. The directive stipulated litigation as a last resort, after all efforts for restructuring of a loan had been exhausted.
Nothing illustrates the irrational thinking of the CBC better than this. It imposed a totally inflexible definition on NPLs that makes the operation of the banks difficult, has been pushing banks to reduce their NPLs but makes this as difficult as possible with its directives and by the Governor suggesting that borrowers would not have to repay their loans in full. This bizarre policy was articulated by the Governor on a TV interview last week, when he said: "The non-performing loans of the 30 big borrowers have to be treated differently than the loans of other businesses and households."
Such is the confusion created that President Anastasiades felt obliged to become involved and state the obvious, that borrowers had to repay their loans. On Friday the AKEL chief met representatives of the big developers and said afterwards they were ready to "fulfil their obligations (to the banks)" as long as it was under "the right conditions". This is tantamount to a drowning man setting conditions for being rescued, but it should not surprise us in this state of confusion and uncertainty we are in.
If we are ever to restore confidence and normalcy the authorities need to take a couple of decisions and stick to them instead of trying to satisfy every interest group and individual that want to get out of repaying their bank loans.
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