The announcement of the Hellenic Bank that it intends to proceed with the sale of almost half of the stock of its non-performing loans by the end of the year -700 million euros in a total MED of 1.5 billion euros- and the expressed will of the Bank of Cyprus to proceed and in new moves to reduce the portfolio of “red” loans puts the Cypriot banking system on track to solve a major problem.
2022 is the year of decline in the volume of non-performing loans at a single digit rate for the two largest banks in the country. In the other banks the problem either does not exist or actions are underway to reduce it.
The substantial restriction of non-performing loans on banks' balance sheets is a major development.
1st Banks get rid of a problem that deprives them of energy and resources (financial and human). Without MES they will be able to focus on adapting their business model, digitization and the thorny issue of the size of their branch networks and staff. There will be developments on both fronts.
2nd The NPLs do not burden the banks' balance sheets, but they still weigh on the borrowers and the real economy. Over-indebtedness and past debt repayment do not allow for a healthy credit expansion, with banks afraid to take on additional risk.
In this new environment, the role of the companies that have bought the banks' NPLs is crucial. They are called upon to bear the brunt of debt consolidation, household and business over-indebtedness.
The equation also includes state intervention, with the evolution of KEDIPES which will buy non-performing loans of vulnerable households, mortgaged with first home, by banks and credit companies.
In this new phase, with credit bureaus having the first say in managing NPLs, it is important to do something that has not been done since 2013: leverage to act as a restart springboard for thousands of households and businesses. Close the accounts of the past, with brave and fair restructuring solutions. Let us not hide behind our finger, credit card companies when buying a MES do not buy the loan, but the property behind the loan. The borrower who has not joined the Estia plan and will not be eligible for the new plans of KEDIPES, ie who is not vulnerable, is called to make his decisions. Besides, it cannot be hidden. This is a positive development for the borrower himself, but also for the economy, more broadly. Debt relief can only be redemptive.