Filenews 1 March 2021 - Theano Thiopoulou
The idea of creating a bad bank as a development of the KEDIPES is on track for implementation by the Ministry of Finance and the exchange of views with the European Commission has already begun.
The reactions are positive mention in the "F" sources of the Ministry of Finance and the discussion focuses mainly on the market value of the portfolios mentioned, a value which should not be assessed as direct or indirect State aid to banks and credit repurchase companies as well as the direct/indirect impact on public finances. Considerations for KEDIPES to assume the role of bad bank began to mature last summer, but the ministry knew that in order to do such a project, supervisors, and in particular the EU Directorate-General for Competition (DGComp), would have to lift the restrictions it has placed on the KEDIPES, which was set up to manage only the NSPs of the former cooperative bank.
The lifting of restrictions should be done by changing the laws governing the establishment of the KEDIPES and only the European Commission can decide this and in this case the HICP should have a dialogue with Brussels.
The Ministry of Finance, looking at the potential for the evolution of KEDIPES, which is as early as August 2018, an Asset Management Company which currently manages exclusively the portfolio of assets, mainly MEX, of the former Cooperative Bank of Cyprus, into a national asset management company, which will be able under conditions to proceed to the purchase of non-performing loans from one or more credit institutions or from other credit acquisition companies.
On the basis of the business plan of KEDIPES, its evolution into a national asset company and under certain conditions will be able to provide in the period 2021-2023 an important solution to the issue of MUS through the possible purchase by credit institutions and credit repurchase companies, loans of approximately €1.5 to €2 billion.
Conditions
More specifically, the KEDIPES, by obtaining the relevant approvals, will be able, through its assets from its operations (restructurings, sales of real estate, sales of loans, etc.) and subject to conditions, to purchase debts of banks for a period of 3 years. More specifically:
(a) The loans that KEDIPES will be able to purchase should have been MEPs on the banks' balance sheets by 31/12/2019.
(b) A prerequisite that the loans be purchased at their market value on the basis of relevant estimates.
(c) Any loan purchases will relate exclusively to loans with the first residence or first professional residence, with a maximum market value of €350,000.
The SSM model
The design must be based on the model desired by the Supervisory Mechanism (SSM): National "bad banks" must be private or a combination of private and state participation and self-financing. Secondly, states should not grant State aid. Thirdly, banks operate in a way that serves the characteristics of each country's banking system. Fourthly, communicate and be controlled by a pan-European data hub from the ECB and the SSM. Fifthly, to ensure transparency between banks, investors, shareholders and borrowers.
Banking concerns
Banking sources explained that another important point is the pricing of the loans to be transferred. The red line is: If the "bad bank" buys a loan above the fair value, it can be considered to be State aid and provokes a reaction from the EU. An important question is whether Cypriot banks, most of which have got rid of much of their non-performing loans, are willing to participate in the bad bank and on what terms.
