Uncertainty over how big an impact the coronavirus pandemic will have on the economy has not only upset banks’ plans, they are unable to make projections for the next quarter.
A bank official told Phileleftheros that the depth of the recessions will play a decisive role as the domestic economy relies on tourism, construction and services.
The macro-economic environment is of concern and bankers are fretting as to what will happen if the fiscal derailment is transferred to the banking system.
Banks do not want to see Cyprus downgraded by international ratings agencies as this could affect their own ratings. They point out that at a time when the Republic of Cyprus wants to borrow €750m from Cypriot banks with a domestic bond, Cyprus’ rating must remain in investment grade.
Further than the hotel sector which banks see as being in the front line of the pandemic’s fallout, banking circles see different conditions in the real estate sector.
The first issue is that of the problem of liquidity that construction companies may face which in the absence of interest from buyers, local and foreign, may lower prices which can affect evaluations in the banks’ portfolios.
The biggest concern is the creation of a new generation of red loans in sectors affected by the pandemic.
Local banks, despite the satisfactory results as regards costs, projections and capital for 20202, have since mid March been operating in difficult conditions, with the economy effectively in lockdown and no indication as to when it will end.
Banks’ concerns are whether employees and businesses that benefited from the suspension in loan installments will recover and be able to service their obligations. They fear that households and companies which have managed to stabilise after persistent efforts since the 2013 financial crisis now face a new test.
The objective of reducing red loans to 10% from 30% does not appear feasible under the current conditions. Without the immediate sale of loans, NPLs remain a question mark for bank managements and the Central Bank.
Banks are in contact with their clients to find out first hand the size of the losses they expect and to discuss how each issue should be handled.
They recognise that if their large business clients survive, jobs will be saved and the repayment of loans can resume.
By Theano Theiopoulou