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New NPL provisions spell losses for banks

Increased provisions by systemic banks in Cyprus to cover non-performing loans (NPLs) will see them register a loss for the first half of 2017.

The banks are increasing provisions for NPLs in line with the increased supervision expected by the European Central Bank’s (ECB) Single Supervisory Mechanism (SSM).

Recent SSM recommendations for systemic banks to increase NPL provisions means that it will affect their profits without much profit recuperation envisaged for 2017.

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Monday’s announcement by the Bank of Cyprus to make provisions for €500 million will result a first-half loss of €550 million marking the largest provision of capital to cover NPLs and virtually reaching the maximum 50% limit imposed by the ECB.

Following efforts to reduce the size of their NPL portfolio, the Bank of Cyprus has managed to reduce their NPLs to 52% from 61% last year, Hellenic Bank from 58.3% to 57.2% while Co-operative Bank NPLs are at 60%.

The Bank of Cyprus is currently looking at selling a large number of loans to reduce its NPL portfolio while making loan-to-asset swaps and adding €1 billion of real estate to its balance sheet.

Hellenic Bank has year on year steadily increased its provisions for performing loans and has one of the highest coverage rates of NPLs and is moving forward with APS Debt Servicing Cyprus to consolidate its balance sheet.

The bank’s provisions have risen to €27.3 million from €21.6 million and is the reason that it has posted losses for the first six months of 2017.

The Co-operative Bank has announced its partnership with the Spanish company Almira to manage the reduction of its NPLs but also needs to absorb provisions of €300 million by applying the IFRS9 accounting standard by 2018 in accordance to Finance Ministry regulations

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