Georgiades: “A bad bank would have benefits only under certain conditions” 

Georgiades: “A bad bank would have benefits only under certain conditions” 

Nicosia, February 5, 2016/Independent Balkan News Agency

A bad bank or an asset management company could be established under certain conditions and would have benefits only under certain circumstances, the Finance Minister said on Friday, on the sidelines of a seminar organised in Nicosia under the title “Solving NPLs through innovative solutions”.

“Of course a bad bank or an asset management company is an option internationally, but as the foreign experts have emphasized, this requires certain conditions and will have benefits only under certain circumstances,” Harris Georgiades told the reporters.

“Therefore is not automatically an easy option, or a feasible or useful one. And of course the establishment of a company that will manage bad loans does not mean that borrowers will abolish of their obligations,” he noted.

Asked if such a bank could be established with taxpayers` money, the Finance Minister said that it could be done either with private funds or with a state contribution and certainly each option has its advantages and limiting factors.

He said that the Government identifies the weaknesses and advantages of each option, in response to a question if this could be an option in the case of Cyprus.

If the problem of non-performing loans is not effectively solved, it could become an unbearable burden on the economy, preventing it from growth and employment creation, and may also prove to be a disincentive for potential foreign direct investment, Chairman of the Cyprus Chamber of Commerce and Industry Phidias Pilides said, addressing the seminar.

He noted that published data are revealing of the evolution of a very worrying situation, as the level of NPLs has been gradually growing and according to Cyprus Central Bank has reached €27.4 billions at the end of November 2015 despite a very large number of restructurings. This represents 46% of total bank lending and is equivalent to 156% of GDP at current prices, clearly a disturbing situation, he noted.
“What we have to keep in mind is that assets and particularly property prices must be carefully managed. We know that forcing foreclosures would have further detrimental effects on property prices. Sales of distressed properties must be managed in a way that would allow property prices to adjust gradually for the benefit of all concerned,” Pilides noted.

“The only certainty is that the reduction of NPLs will not be immediately achievable but it would be a long drawn process. The extent of the problem however is such that any more delay is not an option,” he said.

Speaking at the seminar, Secretary General of European Investment Bank Klaus Trömel referred to the bank`s financial instruments to help investments recovery and Small and Medium Enterprises (SME`s).

He referred to EIB`s financing throughout Europe with 85 billion in 2015 for infrastructure, innovation and SMEs.

As he said, the EIB would like to do more of that in Cyprus and expressed the hope that this would be a first stepping stone “to get the NPLs behind us” and to the return of the investments in Cyprus` economy.

As he pointed out, NPL`s stops the oil to get to the real economy and for the solution of the problem, all stakeholder should collaborate, be patient and reasonable, to create repeatable solutions.

Source: CNA