The Central Bank is preparing a bad bank plan to deal with a possible new wave of red loans, due to the inability of borrowers to pay installments, due to the effects of the pandemic. From the discussions that have taken place, it seems that preparations are underway, so that the Central Bank is ready to implement a “bad bank” if this becomes necessary.
The decision to prepare the ground, according to information from “F”, has been taken at the level of the Central Board of Directors and the next step is to announce a tender to find a consulting firm, which will help the CBC in relation to the prospect of setting up a management company. assets (asset management company).
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The main mandate of the consulting firm that will be selected, will be to prepare a relevant study on how a bad bank mechanism will work in Cyprus, ie where and how the funds will be found, if it will be involved and to what extent the state and which will be the total cost.
Such a plan is expected to breathe new life into the balance sheets of banks, which after the end of the moratorium are required to manage about € 12 billion in loans, the installments of which had been suspended since last March, due to the outbreak of the pandemic crisis. 51 thousand borrowers. The tender announcement procedures were undertaken by the Central Tenders Committee, which consists of senior officials and based on the internal regulations operates independently and without accepting interventions from the Board. However, the Ministry of Finance sees positively the possibility of a “bad bank” and as a thought enters the prospect of KEDIPES taking over this role.
Of course, if and when this happens, the EU Directorate-General for Competition will have to lift the restrictions it has placed on KEDIPES to manage only the problem loans of the former Cooperative Bank.
The fire broke out when the Commission, the ECB and the Single Supervisory Mechanism (SSM) recently called on Member States to adopt or consider the “bad banks” model, presenting the positive effects and effectiveness of such mechanisms in reducing red loans. They set as basic conditions that the national bad banks should be private or a combination of private and state participation, but self-financed. The need was also emphasized not to raise the issue of state aid and for these banks to operate in a way that serves the characteristics of each country's banking system, to communicate and be controlled under a pan-European ECB and SSM data node and to have transparency between banks, investors, shareholders and borrowers. The possibility of a pan-European “bad bank” was also ruled out, mainly due to the different characteristics of each banking system and problems with valuations.