KEPIDES starts bad bank transformation

Nigel Howarth
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KEPIDES starts bad bank transformation

After some delay, Cyprus has started the process of transforming the Cyprus Asset Management Company (KEDIPES) into a national asset management company, also known as a bad bank.

As a national asset management company, the bad bank will help the banking system rid itself of non-performing loans (NPLs), which currently amount to some €5.5 billion.

KEDIPES was set up in 2018 as the residual entity of the former state-owned Cyprus Cooperative Bank (CCB) whose performing part was sold to Hellenic Bank, assisted by €3.5 billion in state aid. KEDIPES is mandated repay the state aid by winding down the CCB’s non-performing loans.

KEDIPES assets as at 31 March 2021 amounted to €7.49 billion in nominal value, including cash of €188 million, immovable property amounting to €619 million and performing loans of €628 with NPLs estimated at €6 billion. Since September 2018, KEDIPES has paid the state €400 million and is in the process of providing the state with properties amounting to €140 million.

According to information from StockWatch, KEDIPES has pre-selected six potential investors, including domestic financial institutions and investment companies all of which have a physical presence in Cyprus and an advisor of the Ministry of Finance is expected to be appointed to manage the whole process by the end of August. (The names of the investors have not been revealed due to confidentiality agreements.)

What is a bad bank?

A bad bank or asset management company is a bank that is set up to purchase bad loans from financial institutions with non-performing assets. By selling its bad assets, the financial institution clears its balance sheet of non-performing loans (toxic debts) and enables it to focus on its core business of lending. The bad bank focuses its attention on maximizing the return from the high-risk assets it has purchased.

The most notable bad bank in the EU is NAMA (National Asset Management Agency), which was set up by the Irish government 2009. Its aim was to address serious problems that hit the country’s banking sector as the result of excessive property lending. NAMA acquired land and development and loans with a nominal value of €74 billion and was funded by the government.

Whether Ireland’s NAMA has been a success is still up for debate. However, in July 2020 it delivered €2 billion to the Exchequer, which represented half its anticipated surplus of €4 billion. The expected balance of an additional €2 billion will be paid over the next two years. The total contribution of NAMA to the Exchequer over its lifetime, including taxes, is expected to be €4.4 billion.

The Government bonds which were used to establish NAMA have already been repaid.

Affordable housing in Limassol

Nigel Howarth
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Affordable housing in Limassol

The largest housing project in Cyprus with the involvement of the Municipal Authority and a total value of over €100 million was announced by the Mayor of Limassol, Nicos Nicolaides.

This development is expected to solve the living problem of about 600 families, 100 of whom are currently living sub-standard accommodation.

“This is the largest housing project ever done in Cyprus with the cooperation of the municipality and the government, and I confess that I am very proud that we managed, together with KOAG, to launch it in our city,” Mr. Nicolaides said.

The ambitious investment in this project envisages the construction of modern housing complexes with amenities and infrastructure, which will meet the housing needs of low and middle-income families, students and young couples.

The housing complexes will be built on three plots of land amounting to 31,081m2 in the areas of Agios Nikolaos and Agios Ioannis and the first is expected to be commissioned in 2023.

Apartments will be allocated based on the annual income of those in need, which should not exceed:

  • €22,000 for a single person
  • €40,000 for families without children
  • €44,000 for families with one child
  • €48,000 for families with two children
  • €58,000 for families with three children
  • €64,000 for families with four children
  • €70,000 for families with five children
  • €76,000 for families with six children.

Those eligible for the program will be able to rent or buy 1, 2, 3-room apartments at much lower prices than those currently offered on the open market.

This project was due to get underway last year, but has been delayed due to the coronavirus pandemic.

It is envisaged that a further phase of the project will be built in Nicosia. Land for the construction has been earmarked in the municipalities of Aglantzia, Agios Dhometios and Lakatamia.

Regular readers may recall that in June 2018 a protest was held outside the Limassol District Administration office on Anexartisias Street against the high rents in the city.

Construction material prices escalating

Nigel Howarth
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0
Construction material prices escalating

The Price Index of Construction Materials recorded a significant annual increase of 13.6% in July, reaching 114.46 according to the Cyprus Statistical Service (CYSTAT).

Compared to July 2020, increases were noted in:

  • Metallic products (+29.61%)
  • Wood, insulation materials, chemicals and plastics (+12.30%)
  • Electromechanical products (+10.38%)
  • Minerals (+2.56%)
  • Mineral products (+1.14%)

Cyprus constructin material price index 07_2021

As we reported earlier this month, construction costs have skyrocketed, with the recent hike in the price of diesel further exacerbating the situation.

Further reading

Press release: Price Index of Construction Materials: July 2021

EC approves scheme for vulnerable borrowers

Nigel Howarth
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0
EC approves scheme for vulnerable borrowers

The European Commission has approved a Cypriot scheme providing partial debt write-off to distressed, socially vulnerable borrowers with loans secured by primary residences.

The eligible loans had been granted under the support programme called ‘Government Housing Plans’, introduced prior to the accession of Cyprus to the EU.

This support programme was open to vulnerable and low-income natural persons that did not own any property, as well as households with special social characteristics. These loans had been granted through a State-owned intermediary, Housing Finance Corporation (HFC). The estimated maximum budget of the scheme is approximately €50.6 million.

Under the measure approved today, eligible vulnerable and low-income borrowers can choose between:

  1. the full and immediate repayment of the outstanding loan, minus all unpaid interest payments as well as non-interest expenses other than the insurance premium; or
  2. the restructuring of the outstanding loan, resulting in a lower interest payment, longer repayment period, and/or changing the identities of borrowers or the guarantor.

Due to the specific nature of the loans (granted under the Government Housing Plans through HFC), they were not eligible for the earlier primary residence protection scheme (‘ESTIA‘), which was approved in 2018.

The Commission assessed the measure and found that it constitutes indirect aid in favour of HFC, as it increases the amount of repayment HFC would receive from the borrowers. The Commission found that the measure supports social objectives is necessary, proportionate, and with sufficient safeguards to maintain competition (including burden-sharing arrangements that require HFC to bear a minimum part of the losses).

As a result, the Commission found the scheme to be compatible with EU State aid rules, in particular Article 107(2) (a) of the Treaty on the Functioning of the European Union. The non-confidential version of the decision will be available on the Commission’s competition website in the case register under the case number SA.63005 once any confidentiality issues have been resolved.

Further reading

EU Commission Press: State aid: Commission approves €50.6 million Cypriot scheme providing support to vulnerable borrowers with loans secured by primary residences (‘Oikia scheme’)

Permits for more than 1,000 new homes authorised

Nigel Howarth
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0
Permits for more than 1,000 new homes authorised

May 2021 saw another rise in the planned number of new homes to be built in Cyprus according to the building permit statistics published by the Statistical Service.

During May a total of 633 building permits were authorised by the municipal authorities and the district administration offices in Cyprus; a fall of 10.6% compared to the 708 authorised in May 2020.

The total value of these permits reached €307.7 million and their total area 268.7 thousand square meters and they provided for the construction of 1,061 new dwellings.

The 633 building permits were authorised for the following:

  • Residential buildings – 453
  • Non-residential buildings – 109
  • Civil engineering projects – 26
  • Division of plots of land – 39
  • Road construction – 6

Building permits for new homes

The 453 residential permits provided for the construction of 995 new homes, comprising:

  • Single houses – 300
  • Buildings comprising 2 units – 87
  • Residential apartment blocks – 544
  • Residential/commercial apartment blocks – 130

Building Permits Issued for the Construction of New Homes
(Number of Dwellings)

Month 2020 (Dwellings) 2021 (Dwellings) Increase/Decrease %age Change
January 696 702 6 0.9%
February 680 663 -17 -2.5%
March 524 1,033 509 97.1%
April 339 955 616 181.7%
May 956 1,061 105 11.0%
Totals 3,195 4,414 1,219 38.2%

Annual construction figures

During the first five months of 2021, 3,157 building permits were issued compared to 2,429 in the same period last year; an increase of 30.0%. Their total value rose by 39.0%, their total area by 40.1% and the number of new homes by 38.2%.

The building permits for the 3,353 new homes that were authorised during the first five months of 2021, provided for the construction of 1,560 new homes in Limassol, 1,416 in Nicosia, 755 in Larnaca, 513 in Paphos and 170 in Famagusta; an overall increase of 38.2% compared to the same period in 2020.

Further reading

CYSTAT press release: Building Permits May 2021

Further golden passports revelations

Nigel Howarth
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0
Further golden passports revelations

Further revelations concerning the island’s disgraced Citizenship by Investment (a.k.a. Golden Passports) scheme, which enabled dubious individuals to acquire Cypriot passports, has been revealed in reports by Al Jazeera and the Organized Crime and Corruption Reporting Project (OCCRP).

In its undercover investigation ‘The Men Who Sell Football’ Al Jazeera reported how convicted criminals could buy English football clubs, which could then be used to launder their ill-gotten gains.

The Men Who Sell Football shows middlemen telling undercover reporters how they can hide a criminal’s money and identity behind offshore trusts and submit fraudulent due-diligence reports to English football authorities.

The middlemen explained how they could help the undercover reporters obtain a new passport for their client, and give him a new name to completely deceive the football authorities.

“We’ve done this many, many times for others who, I can assure you, are in a worse position than your boss,” said one of the middlemen.

One of the middlemen then introduced Al Jazeera’s undercover reporters to contacts in Cyprus. This led Al Jazeera to investigate what was going on in Cyprus, which resulted in their The Cyprus Papers Undercover investigation in October 2020.

The Al Jazeera report led to the resignation of the then House President Demetris Syllouris and his close friend Akel MP Christakis Giovanis and sparked anti-corruption protests in Nicosia.

Their football investigation claims that an unnamed Cyprus government minister flew to London to personally help a Russian investor with a murky past; a claim that was categorically denied in a press release by the Presidency of the Republic.

A separate investigation by the Organized Crime and Corruption Reporting Project (OCCRP) shows a photo of a villa in Limassol purchased by Saudi businessman Abdulrahman bin Khalid bin Mahfouz, whose receipt of citizenship has been questioned by the Auditor General of Cyprus.

“The Auditor General hasn’t accused anyone of criminal activity, but said the murky circumstances of the case warrant more investigation,” says the report.

Golden Passports by the thousands

Cyprus approved 6,679 golden passports between 2008, when the program began, and August 2020. This includes around 3,100 primary applicants, as well as their spouses, children, and parents. In total, the country raised at least 6.6 billion euros through the program, according to figures from the Ministry of Finance.

In early 2014, Cyprus made changes to its citizenship-by-investment program to attract more foreign investors. Previously, individuals had to invest 5 million euros. This was lowered to 2.5 million euros per participant for “collective investment schemes” of at least €12.5 million. Each participant was also required to spend at least €500,000 on a residence in Cyprus.

In June, former Supreme Court Chairman Myron Nikolatos released a report on the program. He found that in over 53 percent of cases, the law had been violated when granting golden passports, especially when it came to secondary applicants.

The European Commission has launched infringement procedures against Cyprus (and Malta); a move that could potentially lead to financial penalties imposed by its Court of Justice.

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