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Strategic defaulters on the spot

By George Telaveris

From proven cases of businessmen who defaulted on their loans while buying for themselves the latest luxury cars to former husbands that swapped their debt for property with their former wife and kids left living there to the surprise of the lender, Cyprus’ non-performing loan story seems to have an endless list of strategic defaulters.

“It remains entirely unacceptable for those who have the means to settle exposures to continue to be in default of their obligations” Bank of Cyprus Chief executive officer, John Patrick Hourican pointed out earlier this week at the bank’s annual general meeting (AGM).

Cyprus’ biggest lender has reduced its stock of non-performing exposures by €5.2b or 35% since December 2014, but they still account for 50% of gross loans or €9.75b as of the first half of 2017, according to the financial results released by the bank during the week.

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“We must return to a normal expectation that the obligation to repay our debts is a fundamental foundation on which a modern and progressive democracy is built,” Hourican said during BoC’s AGM.

Bank of Cyprus posted a €554-million loss for the first six months as it increased buffers for bad debt. The bank expects the ratio of loan-loss reserves to non-performing exposures, the European Banking Authority’s broad definition of troubled loans, to increase to 48% in June 2017 from 42% in March 2017.

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

“Banks are in general careful not to ruin business and jobs that could ticker down more bad loans, or ruin their reputation going after households for few thousands of euros. Hedge funds do not have these barriers,” a senior banking official told the Cyprus Weekly.

The Bank of Cyprus (BoC) share price on Thursday morning was at €2.95, the lowest it has been since May, but still significantly higher than April and March 2017 when it had slid as low as €2.76. Bank of Cyprus floated on to the London Stock exchange on 19 January 2017, while also retaining its listing in Cyprus.

“We continue to work towards a premium listing on the LSE. Our intention is to seek inclusion in the FTSE UK Index Series in time. Our standard listing is an intermediate step on this path,” Hourican said.

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