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Helix

In the first week of July 2019, the long-awaited regulatory approval of Helix took place. Affiliates of Apollo Global Management LLC, back in August 2018, closed on the sale of a loan portfolio. The gross book value of the loan portfolio was €2.8 billion out of which €2.7 related to none performing loans (NPL). See Link

Cyprus NPL Second in Class

Second in class only to Greece, the three major systemic banks sit on NPLs amounting to € 6.9 billion translated to 34.1% of all loans given. With the EU average, almost 3%; Cyprus NPL ratios are tenfold to EU peers

Summary table of aggregate Cyprus NPL figures and the banking sector data with reference date 28 February 2019 available at this link actually show higher figures.

Summary tables of NPLs with aggregate Cyprus banking sector data (non performing facilities data) with reference date 28 February 2019
CBC summary of the aggregate NPLs with reference date 28 February 2019

Welcome to Cyprus Mr.Enria

At the same time, the newly appointed chair of the European Central Bank’s Supervisory Board Andrea Enria visited Cyprus last week and met with Cyprus’s Central Banker, Minister of Finance and the heads of the three largest banks. By coincidence, it was around the time that parliament was discussing the below mentioned legislative changes. Mr. Enria said that “Significant Progress has been made in recent years” with the measures proposed in 2018 amending the insolvency and foreclosure framework being a significant component to help the reduction of Cyprus’ NPLs however further attempts should be made. The major issue being, that “NEW” EU regulations will require banks to provide in their accounting records 100% of the NPLs if the recovery of the secured assets is not possible. Meaning that € 6.9 billion will be written down to 0.

Let’s delay the Cyprus NPL problem

Although Cyprus banks are trying to off-load toxic loans; and with the possibility of a new package, parliament has decided a temporary freeze the auction of real estate associated with NPLs. This is supposed to be a temporary measure, until the 1st of October 2019, in order to help single homeowners and vulnerable groups. Such parties might be included in the ESTIA fund. ms

The Minister of Finance Mr. Charis Georgiades, has since the 12th of July 2019 claimed that parliament’s decision is undermining the common interest and intend to recommend that President Anastasiades revert the laws back to parliament for review.

“If the legislative and executive authorities are one institution, there will be no freedom. There won’t be freedom anyway if the judiciary body is not separated from the legislative and executive authorities.”

Charles de Montesquieu

President’s Power

In accordance with the Constitution of the Republic of Cyprus, the president has the power of veto over laws. The criterion for is that the law affects the security of the nation, defense, and foreign affairs. Furthermore, the President of the Republic of Cyprus, under article 51, may decide to revert a law to parliament for reconsideration. It is my understanding that this is the actions that the Minister of Finance is attempting to invoke.

Upcoming NPL Deal

The proposed legislation, negatively affects, the negotiating power of any bank. Or at least delays the signing of a new deal for the sale of NPLs. Even though the credit funds might take a certain degree of risk, by accepting thousands of NPLs; ultimately if the lenders do not compromise a loan, the auctioning of assets is the only recourse that they have. The mechanism to do so is perhaps the most important step towards exiting the investment and an integral part of a successful NPL reduction program.

It can be argued that the “cease-auction” will actually assist the people of Cyprus. Allowing people to get their finances in order; however, to what extent, will allowing a systemic risk to continue ultimately help Cyprus as a whole.