Bank of Cyprus, the island’s largest lender, aims to achieve a single digit non-performing loan rate by 2022, leaving behind the legacy problems of the 2013 financial crisis that shattered the island’s banking sector, the bank’s CEO Panicos Nicolaou has told the Cyprus News Agency.
In an interview with CNA, Nicolaou, the CEO of the Cyprus’ largest lender, said despite the uncertainty of the coronavirus pandemic, the bank concluded NPL sales in 2020 in the region of €1.5 billion, which left the bank “much better off” in tackling the challenges from the continuation of the pandemic, stating that any future inflow of bad loans will be offset by the continued reduction of the bank’s legacy NPLs.
But Nicolaou noted that 2021 will not be easy and added that the economy of Cyprus is set to recover in the second half of the year, depending on the control of the pandemic.
Since the 2013 financial crisis in Cyprus, the Bank of Cyprus in 2020 concluded a total reduction in NPLs amounting to €13 billion or 88% of its total NPLs and now has set its sights on achieving a single-digit NPL rate (NPLs to total loans) despite the continued fallout of the pandemic.
“Surely 2020 wasn’t a natural year, we however achieved a lot. We provided €1.4 billion in new loans to support the economy, we’ve implemented a loan repayment moratorium to more than 25,000 accounts totalling €6 billion but at the same time we’ve reduced the risk in our balance sheet,” Nicolaou said, pointing out that the bank amid the Covid pandemic reduced it’s stock of NPLs from €3.9 bl to €1.8 bl adjusting for the two NPL sales concluded last year.
“That means that our NPL rate went down from 30% to 16% while we maintained high liquidity and strengthened our capital,” he added.
With regard to the concerns over potential inflow of NPLs due to the expiry of the nine-month payment holiday imposed in Cyprus as part of the measures to alleviate the impact of the Covid pandemic to the economy, Nicolaou said the Cypriot payment holiday, albeit the most generous in the EU, had no strict criteria and consequently was utilised by borrowers who did not face liquidity problems.
“This is evidenced by the situation today. As we announced in our results, until mid-February 95% of the borrowers have paid their instalments and this is very important and very encouraging,” he added, recalling that in the summer of 2020 the bank reviewed 90% of the loans under moratorium and provided borrowers facing challenges with restructurings or liquidity assistance.
Concerning projections over future inflow of NPLs due to the pandemic, Nicolaou said that the bank has communicated to the market it will continue reducing its NPL portfolio via organic reduction or new NPL sales.
“Therefore, any new NPL flow will be offset by the reduction of the bank’s stock of NPLs,” he added.
"Progress is up to the course of the economy but we are cautiously optimistic that the problems arising from the pandemic in the banks’ balance sheet will be manageable,” he went on to say.
Asked over the possibility for new provisions over loan impairments due to the pandemic, the Bank of Cyprus’ chief said the bank took provisions amounting to €200 million in 2020 including €55 million associated with the pandemic which constitute “our buffer for the crisis.” But he added that if new provisions are necessary the bank has a coverage ratio of 60% and has the capital to absorb new provisions.
He however noted that following two NPL portfolio sales in 2020 the bank is “in a much better footing” to deal with the continued pandemic.
“Considering where we were at the start of 2020 and where we ended up with a 16% NPL and a 7% NPL rate net of provisions from 16% in the beginning of the year, we have significantly reduced the risk from our balance sheet and this significant reduction enables us to more effectively manage any negative developments which may arise from the pandemic,” Nicolaou added.
Replying to a question whether 2021 will mark the conclusion of the legacy problems of the 2013 financial crisis, Nicolaou recalled the bank’s market communication even before the NPL sales of Helix 2 that the target is to reduce its NPL rate to single digits by 2022.
“Therefore, we expect more (NPL) reduction in 2021 with the aim to leave the 2013 crisis behind us at least in 2022. I believe the progress will continue and the legacy problems left over from 2013 will be very small and manageable,” he said, adding that NPLs will always exist in a bank’s balance sheet.
“They can’t be reduced to zero, so NPLs should limited to a small manageable amount with good provisions,” he concluded.
Concerning the real estate-owned assets the bank absorbed in the context of debt to asset swaps amounting to €1.5 billion, Nicolaou said the banks expect in the next two or three to four years to reduce them to a manageable level.
“We are not land owners we will reduce our stock drastically in the next three to four years to a manageable level,” he said.