Filenews 6 January 2021 - by Theano Thiopoulou
A bad bank plan is being prepared by the Central Bank to deal with a possible new wave of red loans due to the inability to pay instalments by borrowers due to the effects of the pandemic. From the discussions that have taken place, preparations appear to be under way for the Central Bank to be ready to put in place a "bad bank" if this becomes necessary.
The decision to prepare the ground, according to information provided by "F", has been taken at the level of the Central Board of Directors and the next step is to call for a tender to find an advisory firm, which will assist the CBC in relation to the prospect of setting up an asset management company.
The main mandate of the selected advisory firm will be to prepare a study on how a bad bank mechanism will work in Cyprus, i.e. where and how the funds will be found, whether the funds will be involved and to what extent the state will be and what the total cost will be.
Such a plan is expected to breathe new life into the banks' balance sheets, which after the end of the instalment moratorium are expected to manage around €12bn (£12bn). loans, the instalments of which had been suspended since last March, with the outbreak of the pandemic crisis and relate to EUR 51 million. Borrowers. The tendering procedures were undertaken by the Central Tender Committee, which consists of senior officials and on the basis of internal regulations operates independently and without receiving intervention from the Board of Directors.
Of course, if and when this goes ahead, the EU Directorate-General for Competition should lift the restrictions it has placed on KEDIPES to manage only the problematic loans of the former Cooperative Bank.
The fire was lit when the Commission, ECB and Single Supervisory Mechanism (SSM) recently asked Member States to adopt or examine the 'bad banks' model, showing the positive impact and effectiveness of such mechanisms in reducing red loans. They set as basic conditions that national bad banks should be private or a combination of private and state participation, but self-financed. It also stressed the need not to raise the issue of State aid and to operate these banks in a way that serves the characteristics of each country's banking system, to communicate and be controlled under a pan-European data hub by the ECB and SSM and to have transparency between banks, investors, shareholders and borrowers. The possibility of a pan-European 'bad bank' was also ruled out, mainly because of the different characteristics of each banking system and the problems in valuations.
