A Tale of Restored Confidence

Cyprus’ banking sector has been deeply transformed with both consumer and investor confidence on the rise, yet tackling nonperforming loans continues to be the Achilles heel of banks in the region. Following a recapitalization of an estimated €1.7 billion, a merger with 18 cooperative savings banks and the creation of a red-loan management platform in collaboration with Spain’s Altamira Asset Management, Cyprus Cooperative Bank’s CEO, Nicholas Hadjiyiannis, is confident they are on track to soon shift their focus back to the “boring banking”.

Nicholas Hadjiyiannis was appointed Chairman of the CCB in November 2013, after which he became CEO in December 2015. Mr. Hadjiyiannis has been responsible for overseeing a profound restructuring and recapitalisation of the bank.

After a challenging few years, the Cypriot banking sector is enjoying strong performance, thanks to successful recapitalisations and reforms that have significantly improved the liquidity and solvency of the system. Since the 2012-2013 financial crisis, Cypriot lenders have gone through a deep transformation as a result of the economic adjustment programme and the restructuring in the sector which helped restore confidence.

As pointed out in a statement by staff of the European Commission and the European Central Bank (ECB), “new lending is picking up, supported by the improving macroeconomic environment.” In fact, deposits grew by more than EUR3billion in 2016 – after having declined for three years – and amounted to €48.8 billion in July 2017, according to data by the Central Bank of Cyprus.

Despite the country’s notable achievements since exiting the economic adjustment programme which was overseen by the Troika institutions – the International Monetary Fund (IMF), the European Commission and the ECB  – progress on reducing nonperforming loans (NPLs) has been slow. A recent paper by the European Commission’s Directorate General for Economic and Financial Affairs said “NPLs are declining in the banking sector as a whole, but remain among the highest in the EU.” The same report showed that as of end-June 2017, NPLs amounted to 45% of banks’ total loans.

Addressing the issue of NPLs

Cyprus’ banks have intensified their efforts to reduce NPLs using tools such as loan restructuring and effective management. For example, the state-owned Cyprus Cooperative Bank (CCB) announced in July 2017 that it would set up a servicing platform for the management of non-performing exposures (NPEs) and real estate in collaboration with the Spanish company Altamira Asset Management, SA (Altamira). According to the ECB’s guidance to banks on NPLs, the sum of NPLs, non-performing debt securities and nonperforming off-balance-sheet items constitute the total NPEs.

In an interview with South EU Summit magazine, Mr. Nicholas Hadjiyiannis, Chief Executive Officer of the Cyprus Cooperative Bank (CCB) said: “In absolute terms and in absolute amounts, we have reduced NPLs, but still, we have a mountain to climb.” He emphasised that the NPL ratios are “very, very high, even though the absolute amounts have been reduced.”

Mr. Hadjiyiannis added: “The new NPL business plan that we have prepared is quite ambitious and we are already seeing some positive results.”

Indeed, the CCB’s NPLs dropped from €7.17 billion at the end of June 2017, to €6.72 billion at the end of September, accounting for 58.8% of its total loan book, according to the lender’s financial results for the nine months to 30 September 2017.

In April 2015, Cyprus lifted the last remaining capital controls, just two years after becoming the Eurozone’s first country to impose cash restrictions, following the bail-in of its banks. The sector is now enjoying strong performance thanks to successful recapitalisations and reforms that have significantly improved the liquidity and solvency of the system. However, NPLs continue to remain among the highest in the EU. Copyright: Marian Weyo /

A new phase and CCB’s vision looking forward

The CCB has also made some progress in its operational restructuring efforts. Following mergers that were completed in March 2014, the number of Cooperative Credit Institutions (CCIs) dropped from 93 to 18. These 18 entities have taken legal steps so as to merge under the Cooperative Societies Laws, resulting in the absorption of their assets and liabilities by the CCB in July 2017, effectively creating a single entity.

In fact, following the legal merger, CCB developed a new strategic orientation under the name “Agenda 2022”, focused on the operation of a single bank. In its financial statements for the six months to the end of June, the CCB said “the strategy and the business plan as determined in ‘Agenda 2022’ enhances the mission of CCB which concentrates in the reduction of the high NPLs percentage, the improvement of the sustainability of the business model and the excellent customer service.”

The CCB appointed Citigroup as a global coordinator to examine a possible capital increase in 2018, on the basis of its “Agenda 2022”. As pointed out in a paper by the European Commission’s Directorate-General for Economic and Financial Affairs mentioned above, the Cypriot government “has declared its intention to reduce its share of ownership in the CCB by at least 25% by attracting a strategic investor, which would bring fresh capital to the bank and dilute the State’s shareholding.”

Currently, The Republic of Cyprus is the major shareholder of the CCB, with a stake of 77,34%, followed by the Recapitalisation Fund with 21,88% and the Cooperative Holding Company with 0,78%.

Mr Hadjiyiannis told South EU Summit magazine that Cypriot banks could attract foreign investors “if enough preparation is done in order to show the equity story.”

Summarising the transformation of the CCB, Mr. Hadjiyiannis said the lender was looking to offer banking services in a simple and responsible way. “We have transformed this cooperative history and culture into what we call responsible banking. At the same time, we are learning from the experiences of similar banks in the Eurozone, and especially from Holland and Rabobank,” he added.

EU vision

Looking forward, towards a more stable and cohesive European Union (EU) in the context of the banking sector, Mr Hadjiyiannis said there is a search for a “new economic model” and emphasised that the banking system is still in “defensive mode.” He also said negative interest rates are not helping banks’ profitability and added:  “Still we have not seen the real effect of Fintech [financial technology].” Fintech involves a variety of technological interventions into personal and commercial finance.

Mr. Hadjiyiannis said “the banking system in Europe has not gone through its own revolution” in terms of changing and adapting to technology and to the needs of the people and the businesses. He also pointed to the differentiation between the European and the US banking systems.  “The US Banking system managed to go quickly through its problems and returned back to playing a dominant role in the economy. But at the same time, we do know that in Europe, developments take longer, because that is Europe, it’s a big union of different states and mentalities,” he added.

Nevertheless, Mr Hadjiyiannis emphasised that the EU has a much safer, stable and “a little bit boring” banking system. “But it has to become more dynamic in order to boost economic growth especially in Southern Europe.”

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Editorial Staff

South EU Summit's editorial team is comprised of an international team of journalists and communication specialists with wide-ranging areas of expertise. We pride ourselves in developing firsthand content, and undertaking personal interviews with the most influential players in each market.

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