Bank of Cyprus by 2022 will achieve the goal of single digit percentage of non-performing loans (NPLs) leaving behind the legacy of the crisis of 2013, says Panikos Nikolaou, CEO of the group.
In an interview with KYPE, Panikos Nikolaou said that despite the uncertainty of the coronavirus pandemic, the bank proceeded with sales of MED portfolios amounting to € 1.5 billion, which puts it in a “much better position” to face the challenges of continuing the pandemic crisis. , while stressing that any future flow of new “red loans” will be offset by the continued decline in the stock of NPLs.
The head of the Bank of Cyprus is optimistic about the end of the nine-month moratorium on installments, saying that by mid-February 95% of borrowers have met their obligations and adds that the key is to monitor the portfolio and provide solutions to any difficulties.
However, Mr. Nikolaou emphasizes that 2021 will not be easy, with the return to growth expected in the second half of the year, something that will depend on the control of the pandemic.
Since the peak of NPLs in December 2014, the Bank of Cyprus completed in 2020 an overall reduction of its “red portfolio” by 88% or € 13 billion and now targets the single-digit NPL ratio against total loans, despite the uncertainty caused by Covid pandemic.
“Certainly 2020 was not a normal year. But we achieved a lot. We provided € 1.4 billion in loans to support the Cypriot economy, implemented a moratorium on installments of more than 25,000 accounts amounting to approximately € 6 billion, but at the same time significantly reduced our balance sheet risk. We reduced the NPLs from € 3.9 billion to € 1.8 billion adjusted for the NPL sales, which simply means that the NPL index decreased from 30% to 16% and at the same time we maintained high liquidity and strengthened our capital “, said Mr. Nikolaou speaking to KYPE.
One of the main concerns was the progress of loans after the end of the nine-month moratorium on installments in December 2020, as the bank saw much of its serviced loans frozen as part of measures to support the economy and households in the middle of pandemic. However, Mr. Nikolaou explained that the Cypriot moratorium, apart from being the most generous in Europe, did not have strict criteria, with the result that the borrowers who used it did not necessarily have a liquidity problem.
“This is also proven by the situation that is evolving until today. “As we announced in our results at the end of February, by February 15, about 95% have paid their installment and this is very important and very encouraging,” he said.
The key, he explained in response to a question, was to monitor that portfolio. “We started precautionarily from the summer of 2020, we have examined 90% of the portfolio that was in a moratorium, starting from those we consider high risk and where there were problems or signs of weakness, restructuring or liquidity solutions have been provided and this is very important for to be able to meet their obligations with the end of the moratorium “, he said, adding that the results you see today from the Bank of Cyprus were a consequence of the great effort that began in the summer of 2020.
However, he stressed that the effort continues, the preventive actions continue, the crisis is not over and we must be careful. We must monitor and, where necessary, support our customers, either through restructuring or through the provision of precautionary liquidity.
Regarding the bank's estimates for the future course of NPLs, Mr. Nikolaou reminded that the bank has announced in the market that it is expected to continue the reduction of NPLs in 2021, either from organic restructuring or from further sales.
“Therefore, any inflow of new NPLs will be covered by the reduction of the Bank of Cyprus's older NPL stock,” he noted.
“We are moderately optimistic we will be watching closely, progress also depends on the course of the economy, but we are moderately optimistic that the problems posed by the pandemic on the banks' balance sheets will be completely manageable,” he added.
Regarding the possibility of requiring new forecasts due to the continuation of the pandemic, Mr. Nikolaou stated that in 2020 the bank's total forecasts were around € 200 million, of which € 55 million related to the pandemic, which is the ” our pillow “.
“Beyond that, if additional forecasts are needed, it will depend on the course of the economy. If the economy develops as we have budgeted then the forecasts will be the usual forecasts of the bank. If things go much worse, we are fortified for forecasts, our coverage is close to 60%. “If and when needed we have funds to be able to absorb additional forecasts,” he said.
However, he stressed that after the two MES sales in 2020, the bank is in a “much better position” to face the continuation of the pandemic.
“Considering someone who was at the beginning of 2020 and who was at the end of 2020, we are in an NPL index of 16%, with a net index of 7% (after forecasts), while at the beginning of the year we had an index of 30%, with a higher capital index and with a higher coverage ratio. “So with MES sales, organic reductions and restructurings we have significantly reduced the risk to our balance sheet and this significant reduction helps us to deal much more effectively with any negative developments that may arise from the pandemic.”
We end with the legacy of the 2013 crisis
Asked if 2021 will be the year to achieve the completion of the management of the stock of NPLs, which are the legacy of the 2013 crisis, Mr. Nikolaou reminded the bank's announcements before the completion of Helix 2 that the goal is now the MES index to fall to single digits in 2022.
“So we expect another reduction in 2021 in order to leave behind the crisis of 2013, at least in 2022. So the progress I hope will continue and whatever legacy is left behind in 2013 is a very small and manageable amount, the which will always be on the banks' balance sheets. “NPS can never be zero, it must be a small manageable amount, a small percentage with good forecast”, he added.
Regarding the management of the real estate portfolio, amounting to € 1.5 billion that the bank acquired in the context of the implementation of the exchange of real estate against loans (DfAS), Mr. Nikolaou said that the bank in the last 4 years has proceeded with sales of € 1 , 3 billion, but the stock remains high because with the reduction of NPLs and the voluntary restructuring of some clients in the context of this restructuring, some properties that were mortgages are transferred to the books.
“We expect that in the next two or three years, with the sales we had before the coronavirus, we will slowly reach an amount that will be completely manageable,” he said.
He explained, however, that these properties were transferred to the bank's balance sheet at a forced sale price (around 20% below market value), which gives the bank room either for additional provisions or for a possible reduction in the value of the properties resulting from the real estate. Buy.
“So we are not landowners, we will reduce our stock, we will reduce it dramatically in the next three to four years, so that it is completely manageable as it was before the coronavirus and of course before the 2013 crisis,” he said.
Asked whether, in the context of low interest rates and reduced profitability due to monetary policy decisions by the Central Banks, the bank is considering improving its operating costs, either by reducing the branch network or by reducing staff, Mr. Nikolaou said that in 2021 began a medium-term plan for the transformation of the bank's operational and business model.
“And based on this plan,” he continued, “it will be implemented by the end of 2021. We will monitor the moves we need to make to optimize the number of stores we have as well as the staff.”
However, he hastened to make it clear that after the implementation of two voluntary exit plans in 2019 and 2020, the bank does not have in its immediate plans the elaboration of a new plan to add: “The bank is reforming, we spend and invest a lot of money in the digital transformation and as much This transformation is going on and the digital and the operational model of the bank, you should definitely expect to see actions regarding the way the bank operates “.
Moreover, the bank builds on the momentum brought about by the pandemic and the lockdowns, seeing that 84% of the transactions are done through digital channels, promoting the digital transformation. “This is one of the main messages, it was the clearest message, the shift to digitization and the shift of customers to digitization is a turn without return,” said Nikolaou.
Not at the end of deposits with retail customers
In the context of the rationalization of expenses in the wake of negative interest rates, banks, including the Bank of Cyprus, have imposed deposit fees on corporate customers. Asked if the bank intends to do so to retail depositors, Mr Nikolaou said no.
As he said, “the cost of excess liquidity is very high and worries us but despite that we do not have any thoughts at the moment about imposing a deposit fee on retail depositors.”
“We consider that it is the backbone of the Cypriot economy, it is the backbone of the system and it must be the last to impose any form of fee,” he added.
Crisis management is far from political controversy
Finally, when asked what has lasted since 2020, the head of the Bank of Cyprus highlighted the incredible strengths of society and man when called upon to face an unprecedented crisis.
“So the message I want to give is that in difficult times Cyprus is evolving and acting quite well”, despite the criticism, which, as he said, is normal due to the fatigue in the world, the loss of income, the loss of jobs and restrictions.
“The management of the crisis, the management of the economy must be apart from any political confrontations, it is very important to have a stable political environment, it is very important that investments return to the country, we are a very small economy and any investments, small or large the difference “, he concluded.
Philenews / ΚΥΠΕ
