Insider Economy Moody's says sale of problem loans by Cyprus' largest banks a 'credit...

Moody’s says sale of problem loans by Cyprus’ largest banks a ‘credit positive’

Moody’s has described as a credit positive the fact that Cyprus’ Central Bank Governor expects that two largest banks on the island to sell a significant portion of problem loans.

Moody’s says that on January 20, Central Bank of Cyprus Governor Constantinos Herodotou told the House Finance Committee that “Bank of Cyprus Public Company Limited (B3 positive, caa11) and Hellenic Bank Public Company Ltd. (B3 positive, caa1) are actively pursuing sales of €4 billion of problem loans.”

The banks, which according to Moody’s were not present in this session, “did not make any public comments around the governor’s remarks.”

Moody’s points out that the sales “would significantly reduce their problem loans and improve their asset quality metrics, accelerating the derisking of both banks’ balance sheets, a credit positive for Cyprus’ two largest banks.”

At the system level, a €4 billion sale out of the €10 billion of  non-performing exposures (NPEs) would reduce the NPE ratio to below 20%, from 29% as at end-August 2019, Moody`s statement says.

Moody’s moreover points out that according to the Governor, “Bank of Cyprus is pursuing a sale of €2.8 billion of problem loans, with the transaction potentially agreed as early as end of next month.”

Although the bank has not disclosed any amounts, it did disclose in its latest financial reports that it is in an advanced preparation stage of reviewing NPE reduction structures, which it expected to finalise in the first half of 2020 and that include outright sales of a portfolio exceeding in total €2 billion, the statement reads.

“According to our estimates, if the sale materialises, Bank of Cyprus’ NPEs to gross loans ratio would decline to 12.6%. Part of the remaining problem loans could potentially exit NPE status during 2020-21, according to the bank’s estimates, or resolve through ESTIA, a government subsidy scheme, leading to an NPE ratio of less than 10% in the next 12-18 months”, Moody`s says.

In particular, for Hellenic Bank, the reduction, according to the Governor, Moody`s says, ” could amount to €1.2 billion, with no clarity around the completion of the transaction”.

“According to our estimates, if the transaction materialises, the NPE ratio could decline to 10.7%, excluding NPEs guaranteed by the government. Hellenic Bank’s NPE ratio would also fall to less than 10% with the help of ESTIA (the bank received applications for €130 million housing NPEs), while the bank also expects certain NPEs to return to performing status,” the statements says.

Bank of Cyprus, which accounts for 37% of total banking system assets, and Hellenic Bank, which accounts for 28%, “currently have very weak asset quality, a key constraint on their solvency profile and overall credit strength,” Moody’s says.

As of September 30, 2019, non performing exposures (NPEs2) comprised 31.3% of gross loans at Bank of Cyprus and 25.2% of gross loans at Hellenic Bank, 3 compared with a 2.5% average for European banks as of the same date, the statement concludes.

(Cyprus News Agency)

Top Stories

Hotline 1471 for those feeling stressed and despaired due to the coronavirus

Feeling stressed and in despair because of personal, social and economic consequences of the covid-19 pandemic? Then call the Citizens’ Line on 1471 and...

Number of Cypriot officials attacked through fake social media accounts on the rise

The number of Cypriot officials coming under attack through fake social media accounts is rising year in year out, according to official data. Specifically, data...

Cyprus’ proposals for EU Recovery and Resilience Facility funds before Commission

Cyprus’ plan of proposals to receive about €968 million of funding from the European Union Recovery and Resilience Facility – Next Generation EU were...

Economic sentiment drops by 5.2 points in January due to covid lockdown

Economic sentiment in Cyprus deteriorated this month with the indicator going down by 5.2 points compared to December 2020 because of the new lockdown...

‘Crazy and evil’: Bill Gates surprised by pandemic conspiracies

Microsoft co-founder turned philanthropist Bill Gates says he has been taken aback by the volume of "crazy" and "evil" conspiracy theories about him spreading...

Taste

Squash soup

Ingredients: 1 kg pumpkin, cut into small cubes, approximately 5 cups 2 medium (400g) sweet potatoes, cut into cubes, approximately 2 ½ cups 1 chopped leek, only...

Mezedes

No visit to Cyprus is complete without enjoying the traditional meal of many small dishes known as ‘meze’. This large feast, which has been a...

Prawns with fried cheese, barley shaped pasta

Put the barley shaped pasta into a small pan with salted water, bring to a boil and when tender, drain. Peal the prawns leaving...

Salmon and shrimp sheftalies

Mix all ingredients for tabbouli in a bowl and keep to one side so flavours can combine. Prepare the sheftalies: wash and soak the casing...