The banking sector has the peculiarity that it strongly depends on the economic cycle and the general level of economic activity. In other words, if the real economy is in a quagmire, the banking sector will also be in a quagmire.
The economic crisis caused by the pandemic, by taking the necessary measures to limit economic activity, found Cyprus able to adequately manage a really extremely difficult situation. Public sector and banks have shown and are showing resilience, resilience that did not exist in 2008, at the height of the financial crisis and of course in 2013.
The fiscal adjustment of previous years, after the banking crisis of 2013, reduced the public debt and created the necessary fiscal space that facilitated the Republic of Cyprus to enter the markets and to create an additional liquidity cushion which still allows the financing of support projects. employment and business.
The contribution of the ECB's monetary policy, which keeps borrowing costs low (the yield on the 2030 bond was 0.19% last week, an extremely low yield), but also the European Commission's interventions, was crucial. with the SURE program offering additional funding.
In terms of the future, the implementation of the 1.2 billion-euro National Recovery and Sustainability Plan, which is expected to be approved tomorrow by ECOFIN (Economic and Monetary Affairs Council), creates the reasonable estimate that in the coming years are years of strong growth.
“My view is that the Cypriot economy is performing very well given the magnitude of the challenges it has faced and I believe that your government has done a very good job on the Recovery and Sustainability Plan, which will make an additional difference to the capacity of the economy. to recover “, told us (in KYPE) the president of the Eurogroup, Minister of Finance of Ireland, Pascal Donohiu. Referring to the forecasts for a recovery rate in Cyprus above 4% in 2021 and slightly below 4% in 2022, he said that this is “performance that is really strong given how devastating the pandemic was last year”.
The “red” loans
All of the above have, of course, a direct effect on the banking sector, which, thanks to the consolidation of previous years, has maintained funds and liquidity, without limiting credit expansion.
The elimination of NPLs is the biggest issue and source of vulnerability for the banking sector, with the reef of sales emerging as the biggest obstacle. The government will try to solve the problem by transforming KEDIPES into an asset management company that will absorb, by criteria, the loans of vulnerable borrowers. If the residence of the really vulnerable non-performing borrowers in their home is somehow ensured, then any argument against the sale will be removed. This remains to be proven in practice, as the goal of the “Home” project was similar.
Although the implementation of “Estia” revealed that the phenomenon of strategic defaulters is widespread, this finding did not lead to the activation of sales to those borrowers who did not apply for participation in the project. Political resistance has been and is strong and the management of sales is still a point of tension. The President of the Republic on Friday referred the law to extend the suspension of sales until the end of October. If the referral is rejected (the most likely development) then the government will refer the law to the Supreme Court.
It is noted that a total of 6,393 applications were submitted for participation in the “Estia” project, of which 3,796 are fully completed, 1,919 are incomplete, 90 have been withdrawn and 578 applications relate to special cases, which will be sent for approval or rejection to the special committee the Ministers of Finance and Labor, Welfare and Social Insurance.
Of the fully completed applications, 802 received final approval, 759 are unsustainable and eligible, while 88 are eligible but have undergone loan restructuring. 2,697 applications were rejected, while 28 applications have been returned to the banks for correction and will be sent again to the Ministry of Labor.
Moodys is positive
The challenge of MES remains, but this did not prevent Moody's from proceeding with a double upgrade of Bank of Cyprus and Hellenic Bank, maintained the rating of RCB Bank (which has no problem with MES) and put all three systemic banks in positive outlook.
The Moody's rating for Bank of Cyprus and Hellenic Bank measured the continuing decline in NPLs, but also the raising of new capital in the coming years to meet the MREL requirement (minimum equity requirement and eligible liabilities), which will change the structure of banks' liabilities and will increase the margin of funds available to protect depositors.
The move of Eurobank
Is the glass for the Cypriot economy and the Cypriot banking system half full or half empty?
Eurobank's decision to invest in the Cypriot banking system, acquiring the shares held by Third Point in Hellenic Bank, shows us that we must see the glass half full.
“Hellenic Bank is the second largest bank in Cyprus, active in private and corporate banking and international banking. This investment is in line with the Eurobank Group's strategy to further strengthen its presence in all key markets in which it maintains strategic interest. Having a very good knowledge of the domestic market, through the 100% subsidiary Eurobank Cyprus Ltd and taking into account the positive prospects of the Cypriot economy, Eurobank believes that Hellenic Bank, with its management, capital structure and loyal customer base, is in an advantageous position to take advantage of existing prospects and seize future opportunities. In this context, Eurobank looks forward to working closely with the other shareholders and the Board of Directors of Hellenic Bank and is committed to contributing positively and constructively in this direction “, states Eurobank in the announcement issued for the acquisition of 12.6% of shares of Hellenic Bank.
Eurobank's entry into Hellenic Bank is expected to bring mobility to the sector. In recent years, bank executives in private discussions do not hide that in Cyprus there is a large number of banks and mergers – acquisitions are an inevitable development.
In any case, the participation of Eurobank in the share capital of Elliniki is not evaluated as a simple investment and bank executives believe that the relationship between the two banks will evolve. Besides, Eurobank Cyprus has a portfolio of operations complementary to that of Hellenic Bank.
In 2020, Eurobank Cyprus had profits of 40.1 million euros, a capital ratio of 26.2% and a loan balance of 2.2 billion euros. All this with a network of eight banking centers and a representative office in Moscow.
Hellenic Bank closed 2020 with a profit of 50.5 million euros, a capital ratio of 20.01% and net loans to customers amounting to 6.097 billion euros.
Bank of Cyprus – ETYK
In the whole scenario, the renewal of the collective agreement with the Bank of Cyprus, which introduces a new innovation in the Cypriot banking system in terms of the way of granting the increases, is also evaluated as a sign of progress and strengthening of stability. Granting a raise and a surcharge will not be automatic, but will even be partially linked to the job, the tasks and the performance.
According to the ETYK circular to the employees of Bank of Cyprus, from 2022 the annual increase will be paid directly (75%) and indirectly (25%). The remaining 25% is linked to the ratings of each employee.
Bank of Cyprus sources characterize as very important the differentiation “which changes the data in our industry and will lead to the substantial enhancement of efficiency and effectiveness. This development does not mean a reduction in costs, but an increase in productivity for the benefit of the customer “.