The negative financial effects of the coronavirus have come at a very crucial time for Cyprus banks, Phileleftheros reports.
Banks are mandated to manage a difficult situation under great political and supervisory pressure, reminiscent of the 2013 crisis when the island’s banking system collapsed.
However, the variable now is completely different with the banking system recording excess liquidity of some €15 billion in contrast to 2013 when that was at zero level. And the repayment of ELA emergency liquidity, along with over €9 billion to the European Central Bank, was more than urgent.
Non-performing loans stood at €27.32 billion by end of 2014 and have gradually been reduced to €9.41 billion by the first nine months of 2019.
What is at stake now is not to create a new generation of red loans. Moreover, legislation providing a nine-month suspension of instalment payments and €2bn of loans with state guarantees as well as other measures approved by parliament are expected to lead to significant revenue losses by banks.
Reassurances to the opposite from the Single Supervisory Mechanism are not enough, according to insiders who are convinced the decisions taken by the government to counter the coronavirus’ financial consequences will affect the capital level of banks.
Total interest income reached €785 million in the first nine months of 2019, compared to €1 billion in 2018 and €745.16 million in the first nine months of 2018. With the suspension of interest and installments, banks are expected to lose significant real – not accounting – revenue which is significantly reduced each year due to lower interest rates, anyway.
In addition, the state will now guarantee 70% of each loan individually received by households, businesses and self-employed and the banks will bear the risk of 30%.
In other words, banks could lose a maximum of €600m if a client’s loan defaults. Bank profits are expected to be tested accordingly and with remaining funds being at stake.
The banking system’s Core Tier 1 capital ratio / Common Equity Tier 1 capital ratio was 14.9% at the end of 2017, 15.1% in 2018, and 16.6% in the first nine months of 2019. Each bank has different indicators of capital.
By Theano Theiopoulou
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