By George Mouskides
A healthy banking sector is vital for a sound economy.
If banks are to put their house in order and avoid mistakes of the past they must first and foremost take the right decisions at the right time on vital issues.
Sixteen whole months have gone by since the “haircut” and banks have failed to adopt a specific strategy concerning issues like non-performing loans (NPL), their restructuring and properties on mortgage.
We are all expecting to see the fate of the bill in the House of Representatives about property foreclosures and whether it will be enacted into law, as demanded by the Troika.
The Central Bank of Cyprus has already issued directions about the procedures to be followed when re-structuring loan payments.
The Bank’s directions offer solid ground for negotiation between the two parties to reach a deal beneficial to both.
A great number of people are willing and ready to co-operate with banks and work out a formula so that they switch around their NPLs and start paying as much as humanly possible.
Banks seem to have adopted a very hard stance, making outrageous demands of their customers and basically asking them to agree to solutions well beyond their means.
There are many examples of such demands.
When banks are approached to re-structure loans they ask for new guarantors, new mortgages, increased interest rates, etc. Facing economically drained debtors, banks have no inhibitions and make unrealistic demands.
The law of physics on force and kinetic energy states that “to every action there is an equal and opposite reaction”. Faced with such harsh demands, bank customers usually respond by terminating any and all payments, hoping that the repossession law will not be passed any time soon or that they will be protected by the government’s intentions to safeguard the right to the primary residence.
Banks as a matter of practice do not accept proposals by their customers to buy their properties at today’s low prices in exchange of partial / full re-payment of their loans.
Out of the Question
Considering all of the above one has to ask. What is the banks’ strategy? To go ahead with mass foreclosures? Not by a long shot. The reason is that such a development will prove catastrophic for the country’s banking institutions.
If such a development was to materialise, the prices of mortgaged properties would fall dramatically, to the point where banks would need to make huge provisions and would have to seek new and hard-to-find capital to recapitalise themselves.
As we believe that banks are not suicidal by nature, we find it hard to interpret their strategies.
While mass foreclosures are not to their benefit, and while they do not accept pledged properties against the NPLs, we cannot detect a willingness to find common ground with their customers.
What is their aim? We need an answer.
George Mouskides is General Manager of FOX Smart Estate Agency, Licensed Estate Agent and US Certified Public Accountant
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