By Pavlos Loizou
The Covid-19 crisis did not start as a financial crisis, but it is morphing into one—and a global one at that.
The headlines of 2020 have been dominated by news of the pandemic’s spread, record-shattering falls in output, and surges in poverty and the newly unemployed (this is not so evident, as government programs are helping companies retain employees by subsidising their salaries).
Behind these disturbing trends, a quieter financial balance-sheet crisis is gathering momentum across a broad swathe of countries.
The financial fallout from the pandemic does not respect differences by region or income status.
Financial institutions are facing (and will face for some time) a marked rise in non-performing loans (NPLS).
As the economy slows and turns into recession, loans made during the good times will turn sour.
Unfortunately, we have been through the same sequence before with banks still struggling to resolve the overhang of NPLs from the previous crisis.
Whilst the amount of NPLs in the Cyprus banking system is now circa €6.32 bln, it is important to note that there are an additional circa €13 bln outside the banking system which are still “weighing down” on the economy.
Of these circa, €6.2 bln are owned by the Cyprus government (and managed by Altamira), €3.5 bln by Alpha Bank (managed by Altamira), €2.7 bln by Gordian Holdings, €300 mln by Bain Capital (managed by Altamira), and the remainder by B2Kapital Cyprus and APS Cyprus.
Can the banking system support the wave of new NPLs, refinancing the NPLs outside the banking system, and prop-up and assist the rest of the economy?
With banking, tourism and real estate coming under pressure at the same time, there are bound to be buying and investment opportunities as well as consolidation in various subsectors of the economy as companies seek to reduce costs and increase efficiencies.
Is someone going to bulk-buy high-end apartments and sell them retail over the next 10 years?
Will new companies be formed in the logistics sector to cater for the increased volume of distribution/ parcels as retail moves increasingly online?
Will marketers develop new ways of promoting real estate through 3D viewings and virtual tours?
Will companies automate the preparation and signing of documents leveraging electronic signatures? Definitely yes!
We are looking at deep disruptions in the supply chain across sectors, thus the answer of what to do cannot be found in gathering data and looking at how things were done in the past.
Companies need to project forward to find their niche in a world that is moving even faster, a more transparent marketplace, and a levelling of the playing field created by technology.
The corporations that will accomplish this diversification will thrive in the years to come.
Pavlos Loizou is Managing Director, WiRE FS
