Constructive work on title deeds issue

UK MINISTER for Europe David Lidington yesterday welcomed the “constructive work” done by the Cyprus government over the sensitive issue of title deeds, still pending for thousands of property owners, both foreign and Cypriot.

Speaking after a meeting with Foreign Minister Ioannis Kasoulides in Nicosia, the British minister said he welcomed the “constructive work” done over the vast question of property.

“I know that this is not something that has only affected British people, but a very large number of citizens here in Cyprus have been beset by the same legal problems over housing arrangements that in some way have gone wrong. And it’s in both our interests to hope for a way forward for those families that go through a great deal of anguish and uncertainty,” he said.

Kasoulides said the two ministers had a chance to “map out our coordination in relation to the sensitive issue of title deeds and the problems faced by a number of our British friends who have purchased property in Cyprus and also, of course, to thousands of Cypriots who face exactly the same problem”.

“This is an important issue for the Cypriot government that we are determined to effectively address,” he said.

The two also discussed the Cyprus problem, bilateral relations, European issues and regional developments.

On the Cyprus problem, Kasoulides said they had “conducive and in depth discussions” on the latest developments, particularly the government’s position on the resumption of negotiations, including the proposal for the return of the fenced off part of Famagusta as a “game changer”.

For his part, Lidington told reporters that he was “encouraged” by what he has learned regarding the latest steps in the search for a solution, which, he argued, would be “so much in the interest of every family on the island”.

A solution would offer a “huge economic prize” that could bring great prosperity to people from every community and every background in Cyprus, he said.

“I can think of no other political event which would send such a clear signal to international investors in Europe and all around the globe that the prospects for economic development in a reunited island were better than ever before in our lifetimes.”

The UK and Cypriot ministers discussed bilateral cooperation, highlighting the recent work between the Cypriot and UK authorities concerning the restructuring of the public sector, and Cyprus’ economic obligations towards the Troika of international lenders.

Lidington said the British government was pleased to be able to provide Cyprus technical support during the crisis earlier this year and since then in the ongoing work of the government for reform of the public sector.

“I think that President (Nicos) Anastasiades and his government showed very courageous leadership at a time of grave economic difficulty and we want to continue to do whatever we can to help the people of Cyprus to gain a more prosperous future by getting people back into work, getting the economy going again,” he said.

The two also discussed regional issues, including the “ongoing humanitarian turmoil in Syria, as well as managing the event of a possible escalation, in which Cyprus can and is ready to provide a safe refuge for EU nationals and others”, said Kasoulides.

The British minister said the UK and Cyprus “share a determination to do whatever we can to resist the proliferation of weapons of mass destruction, to resist international terrorism that looks for fruitful soil in the Middle East, in North Africa and in the Sahara”.

Summing up, Kasoulides described the UK as “a partner of unique importance for Cyprus, and certainly one with which we share a strong, pragmatic and deeply founded relationship of decisive potential on the basis of reciprocity”.

During his two-day visit which ended yesterday, Lidington also met with with Anastasiades on Tuesday and Turkish Cypriot leader Dervis Eroglu yesterday.

Majority have paid their Immovable Property Tax

NEARLY 90 per cent of property owners had paid their Immovable Property Tax (IPT) before yesterday’s deadline when the 10 per cent discount offer expired.

A tax official who spoke to the CyBC said that of the 236,000 Immovable Property Tax forms sent out, 87 per cent (approximately 207,000) had been returned; roughly €93 million in payments had been collected.

The 10 per cent discount period has now expired and remaining registered owners have until the 15th November 2013 to pay the full amount they owe.

Registered owners who delay paying their IPT until after the 15th November will face a 10 per cent penalty on the tax they owe – plus a pro-rata 4.75 per cent annual interest rate.

Inland Revenue help lines

The Inland Revenue has a number of help lines for those with Immovable Property Tax queries:

Nicosia
Limassol
Larnaca
Paralimni
Paphos
22807488 25803700 24803658 23811458 26804342
22807277 25803837 24803655 26804337

Big three banks announce loan rates cut

THE island’s ‘big three’ banks – the Bank of Cyprus, the Hellenic Bank and the Alpha Bank have announced plans to cut their loan interest rates.

The Bank of Cyprus plans to cut their interest rates on housing loans for ‘financially vulnerable’ groups by as much as 1.0 per cent, student loans by 1.0 per cent, while the interest rate on loans on credit card would be lowered by about 2.0 per cent.

The Alpha Bank has announced up to a 1.7 per cent drop in interest on new consumer loans and on new loans for small and large businesses. New home loans would be reduced by up to 1.0 per cent.

The bank is also lowering its rate of interest on arrears on all loans, which overall would amount to decreasing the Annual Percentage Rate of Charge (APR) from 3.0 per cent to 1.8 per cent.

The new rates are applicable as of November 25, and are consequent to revisions the lender is making to its Bank Base Rate, the Housing Loan Base Rate and the Consumer Loan Base Rate as these are linked to the Euro Interbank Offered Rate (Euribor) on that date.

In cases where a court ruling has been issued against a debtor, Alpha Bank said it would not charge more than 9.5 per cent. The bank promised also to publish its base rates every three months.

The Hellenic Bank, which is now the island’s second largest lender after the demise of the Laiki, said it was revising its base rate downwards from 5.50 per cent to 5.25 per cent. Loan rates to businesses would be lowered from 4.50 per cent to 4.25 per cent.

In addition, the Hellenic will be cutting rates on two types of home loans, from 4.15 per cent to 3.65 per cent and from 5.00 per cent to 4.50 per cent, respectively.

The new rates apply as of November 13. The bank said it was considering “additional measures and reductions” which it would be announcing soon.

Last week, the Hellenic successfully completed its recapitalisation through private funds after three major investors poured in €100m, taking 75 per cent of the share capital.

Meanwhile, reports indicate that non-performing loans have reached around €15.5 billion.

Why Bank of Cyprus should not be separated

bank-of-cyprusAFTER many months of speculation, it appears that Bank of Cyprus (BoC) will not be split into two (commercial and real estate bank) as it seems that the new Board is more keen towards the creation of a separate ‘internal unit’ that will (pro)-actively manage non-performing loans (NPLs).

The transfer of liabilities (e.g. ELA) to a new entity does not find fertile ground within the new Board, who seems to prefer the specialised handling of large debts from experts in restructuring and/or loan proceeds/repayments, i.e. a dedicated focus on managing the workout of ‘troubled’ loans.

One of the reasons that separation should not be made is the difficulty of transferring part of the ELA funding of the Bank and its correlation with loans which have medium-to-long term payback periods. Importantly, the ELA transfer will also require separate approval by the ECB after non-compliance with the specific agreement currently in place.

Also, the problematic asset long-term economic value when ‘transferred’ to this new entity (i.e. real estate bank) is another reason why the separation should not be made. Pricing these assets most likely to lead to a significant discount compared to current book values. Even if the Irish example is not directly linked to the Cypriot one, in Ireland problematic and repossessed real estate assets have been discounted as much as 70% from their book value when disposed.

This in-house non-performing loan (NPL) unit will be created within the Bank which it will handle the largest debtors of the new BoC. The aim of an in-house NLP division is to pro-actively manage problematic loans and ‘wind-down’ currently repossessed (or to be repossessed) assets with a view to maximise recovery value with no immediate time pressures (note that there are also social-economic implications that the policyholders need to address with mass liquidations and disposal of real estate in an armlet where there is currently no market liquidity).

BoC will require the setup a team of asset managers with local knowledge of the banking and real estate sectors, exclusively pro-actively managing these repossessed and non-performing assets. The setup and execution of such a structure requires thorough preparation, especially from the Cypriot authorities but also from the participating banks to ensure that all economic, legal and accounting issues are addressed appropriately.

The new Bank of Cyprus needs to start fresh and regain the trust of its customers, while helping both problematic and over-leveraged customers (corporate and individuals) to find long-term sustainable and creative solutions. It will also have to deal with the legacy of historic expansion and growth in non-performing loans in various sectors of the local economy.

BoC is now adequately capitalised and has exited resolution. New management is in place and they have completed the five-year restructuring plan. The ECB’s Governing Council has recognised the steps taken to restore confidence. Continuing the efforts to create a stronger and safer Bank of Cyprus is in all of our interests. But until then, we have a long way to go…

Dr. George Mountis
Regional Managing Partner
Banking | Wealth & Trust | Asset Management advisory
P.P. (The Parthenon Partners) & Co
Tel: + 357 – 99 49 41 42
Email: [email protected]
Web: www.theparthenonpartners.com

Hellenic Bank recapitalised

hellenic-bankHELLENIC Bank successfully completed its recapitalisation through private funds on Friday after three major investors poured in €100 million, taking 75 per cent of the share capital.

Cyprus-based online game developer and publisher Wargaming Net and American hedge fund Third Point got a 30 per cent stake each by putting in €40 million apiece. Cypriot investment company Demetra received 15 per cent with €20 million.

The Church of Cyprus has a 27 per cent stake in the bank, but the shake-up would see its share shrink.

A due diligence of the banking system by investment firm Pimco had found that Hellenic needed some €294 million in extra equity to meet core capital adequacy requirements.

Hellenic fell short by some €36 million.

The lender had been given till end-October to meet the regulatory minimum 9 per cent core capital ratio by private means but was granted a one day extension by the troika in light of the on-going negotiations.

On Friday morning, Archbishop Chrysostomos said the aim was for the bank to remain in Cypriot hands.

He rejected suggestions that it was fighting to retain its stake.

“I believe the effort will yield results and more than 36 million will be found,” Chrysostomos said.

The archbishop reiterated that the Church did not want one investor to gain control, especially the hedge fund.

“They go in to profit. Our aim is not profit. Our aim is to serve the people. Some may not believe it, it is their business, we don’t care,” Chrysostomos said, adding that he trusted Wargaming because they went back a few years and they were friendly.

Hellenic Bank recapitalised

Banking commission final report released

Bank-of-Cyprus-HQLAUNCHED in November 2012, the Independent Commission on the Future of the Cyprus Banking Sector was set up by the Central Bank of Cyprus to make recommendations on ways to raise the strength of the sector, to improve supervision, and to promote banking competition in Cyprus for the benefit of consumers and businesses.

On Wednesday, the Commission met with President Nikos Anastasiades and presented its Final Report and Recommendations Report which was published yesterday.

The 118-page report, compiled by the Commission’s four international banking experts, says that Cyprus’ banking crisis was due to: external and internal factors, risky strategies, weak bank governance, ineffective supervision, and other factors.

According to the report, one of the business practices that contributed to the bad loan problem at the heart of the crisis was “advancing loans against collateral (usually real estate) and personal guarantee, with insufficient attention paid to cash flow and ability to repay.”

“When Cyprus property bubble burst, the banks often found that the collateral could not be seized, or had fallen sharply in value, and that the guarantees could not in practice be called. However, rather than recognise these loans as bad, the banks used various practices to treat them as good, for example by extending the repayment terms or accruing the interest on them at penalty rates, which had the effect of boosting both the balance sheet and revenue. Rules governing the recognition of nonperforming loans were also lax.”

The Commission believes that Cyprus’ prospects would be greatly improved if capital controls were lifted soon, and a state guarantee of all deposits in Cyprus banks was issued to reduce the risk of deposit flight and that “confidence in Bank of Cyprus will best be created by taking out the non-performing loans (NPLs) and placing them in a separately incorporated entity owned by the bank’s shareholders, funded by the BoC and managed by private sector individuals with strong incentives to recover value. This will free it from its NPL burden and give greater transparency to its true operating performance, which should improve. BoC urgently needs strong executive leadership to manage its transformation and extract the full benefit from the merger with Cyprus Popular Bank.”

Further reading

Independent Commission on the future of the Cyprus banking sector Final Report and Recommendations