Bad loans decline through coop deal a credit positive Moodys says

first_imgMoody’s rating agency said the decline of non-performing exposures (NPEs) by €5.6bn, or 33.6 per cent, stemming from the resolution of the co-operative bank (CCB) is a credit positive for the Cypriot banking system because it reduces asset quality risks and supports depositor confidence.The NPE improvement primarily reflects the resolution of Cyprus Cooperative Bank Ltd. (CCB) and subsequent transfer of its €5.6bn of NPEs, primarily related to household lending, to a non-bank asset management company, Cyprus Asset Management Company.CCB’s resolution and NPE transfer reduce the risk of higher losses for the Cypriot banking system, Moody’s said.The CCB’s remaining assets and deposits were transferred to Hellenic Bank, which has supportedoverall depositor confidence in the system.Cyprus’ percentage of NPEs dropped to 31.8 per cent by September 30, 2018, which remains highrelative to the region, but is down from 40.4 per cent at the end of the previous month, and 43.7 per cent at year-end 2017.“We estimate that the majority of CCB’s NPEs (over 80 per cent) were primarily mortgage loans. Therefore, the NPE ratio in the household sector (accounting for 40 per cent of system gross loans as of September 2018) improved the most, declining to 38 per cent as of September 2018, from 53 per cent as of August.”Household loans have the lowest loan loss coverage ratio so their exclusion leads to an improvement in the system’s overall coverage, Moody’s said.However, the reduction in banking system NPEs does not reduce the debt burden on the economy because CCB’s NPEs will continue to be managed, albeit outside of the banking system, with the intention of being restructured, rescheduled and repaid.Cypriot households continue to be highly indebted: household debt was 105 per cent of Cyprus’ gross domestic product and nonfinancial corporate debt accounted for an additional 122 per cent of GDP as of March 2018. The transfer does not reduce these debt levels.In total, NPEs across Cypriot banks dropped by €10bn during the first nine months of 2018 to €11bn, almost half the amount as of year-end 2017.In addition to the recent €5.6bn transfer, the other main driver of the recent reduction was roughly €3.2bn of NPE sales and transfers by Bank of Cyprus, Alpha Bank, and Hellenic, primarily related to small and midsize enterprises.Despite the reduction from these sales and transfers, however, the pace of actual loan repayments has been very slow, despite economic recovery and growth since 2015.Moody’s said it expected loan repayments to be supported by the recent regulatory and legislativemeasures to improve the foreclosure and insolvency framework, and a government-sponsored plan (Estia) targeting socially vulnerable borrowers that have defaulted on their mortgages. Estia, in particular, is expected to incentivize the resumption of repayment of around €1.4bn of retail loans that remain in the banking system’s NPE balances.You May LikeCalifornia Earthquake AuthorityEarthquake coverage that comes with optionsCalifornia Earthquake AuthorityUndoLivestlyChip And Joanna’s $18M Mansion Is Perfect, But It’s The Backyard Everyone Is Talking AboutLivestlyUndoSUVs | Search AdsThese SUVs Will Take Your Breath Away. Research 2019 Luxury Crossover SUV DealsSUVs | Search AdsUndo Our View: Argaka mukhtar should not act as if he owns the beachUndoPensioner dies after crash on Paphos-Polis roadUndoThree arrested in connection with hotel theftsUndoby Taboolaby Taboolalast_img

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