May 05, 2015

Angelos Gregoriades: Loan Sales May Facilitate NPL Reduction

Loan sales may assist the collective effort to reduce Cyprus’ inordinately high levels of Non-Performing Loans (NPLs), President of the Cyprus Investment Funds Association (CIFA), Angelos Gregoriades, has affirmed. 

If properly deployed, these sales may aid Cypriot banks as they move to address the NPLs mainly associated with the real estate sector.

This technique, Gregoriades has explained, has previously been implemented by other European states - including Ireland and Spain - and has proven successful.

According to relevant data released by the Central Bank of Cyprus, NPLs reached €29billion in November 2014, corresponding to 50% of total loans. The real estate loan portfolio, meanwhile, amounts to €7.21 billion in total, 78% with of which is non-performing.

Loan securitization is included in the island’s economic adjustment programme and will be discussed between the Cypriot authorities and their Troika of international lenders – comprising the EU, EC and IMF – which is currently performing its sixth evaluation of the country’s reform programme. 

The CBC has prepared the legal framework facilitating loan sales and is awaiting the Troika’s comments. This framework, Gregoriades has stressed, should impose limitations or criteria regarding participants in the loan sales market. He noted that these organisations should be licensed by the Central Bank, in the case of a banking institution, or by the Cyprus Securities and Exchange Commission, in the case of a private equity fund. In both cases, he underlined, it is imperative that these organisations be based in Cyprus.

Furthermore, the CIFA President added, the involvement of hedge funds, which follow a more aggressive policy and aim to achieve more short-term profits, is also considered a “remote” possibility.

 “I believe that the funds that would show interest in Cyprus will promote and complete these projects, providing added value, and this would create jobs. Under the current circumstances I believe it is difficult or perhaps impossible to achieve large-scale real estate sales in the short-term,” he said.

Moreover, Gregoriades said the involvement of equity funds and their expertise in areas such as corporate restructuring and project monitoring would further assist the Cypriot economy.

“Empirical data in countries such as Africa show that the involvement of equity funds brought more profitability, more jobs, because the fund works in a more correct and more efficient way which puts the economy on a more sound basis,” he highlighted.

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