CEOs of Cypriot systemic banks list challenges for banking sector

Over-banking and excess regulation are challenges the banking sector in Cyprus is confronted with, according to the Chief Executive Officers of the three systemic banks on the island.

John Patrick Hourican from the Bank of Cyprus, Nicholas Hadjiyiannis from the Cooperative Central Bank and Ioannis Matsis from the Hellenic Bank spoke of the challenges and opportunities in the Cypriot banking system during a lecture at the University of Cyprus, on Tuesday.

Hourican noted that it is wrong to presume that the banking system was working perfectly before the advent of the crisis, as the non performing loans (NPLs) in the Bank of Cyprus were building up for 20 years, he noted.

He said that today the NPLs in the Bank of Cyprus are around 50% and that the Bank has moved 22% of GDP out of NPLs.

We have a liability problem which is all but than resolved and we have an asset problem which is in its seventh quarter of resolution and I think theres probably another 10-12 quarters before we can declare some level of victory on that balance sheet, he noted.

We have a banking system that albeit its better capitalised, albeit is more transparent, albeit is excessively regulated, it is actually also facing one of the greatest existential threats to the industry in living memory and that is digitisation he said.

Hourican went on to say that the Bank of Cyprus is now an incredibly concentrated bank in a single island and we have a Siamese relationship with the country. The country does well, we do well, if we do badly there wont be no credit in the economy, the country will do badly.

He also stressed that the imposition of excess regulation presents a massive challenge to small banks to survive.

The time spent by executives and managers in banks today dealing with the detritus of another piece of regulation being imposed on them universally using averages across the Eurozone is extremely debilitating to the practice of good management and indeed the creation of good future strategy Hourican said.

The CEO of the Bank of Cyprus also noted that Cyprus is over-banked and that the banking industry is excessively distributed, adding that we are gonna have to push forward in market and cross market consolidation over time.

Nicholas Hadjiyiannis, CEO of the Cooperative Central Bank (CCB), spoke of opportunities in the banking system.

Today, he said, the Cooperative sector is consolidated, is regulated and supervised by Frankfurt, and is on its way to list in the local stock exchange, adding that this is a major milestone.

He said that the Cooperative sector last year reduced its loans in arrears for more than 90 days by Euros 1.2 billion, in a country that has a GDP of Euros 17 billion. Its huge but still is not reflected in our NPL ratio, because the economy is deleveraging.

He went on to say that our reliability has increased significantly, but the most important factor for the banking challenges is the economy. How the economy is performing. And there is growth in the economy, we do see positive signs, we do see increased confidence and trust.

Nevertheless, he noted that the Cypriot economy is part of the eurozone and unfortunately we have to live with the weaknesses of the European banking system. He referred to the negative interest rates of the ECB, adding that the three systemic banks of Cyprus together have a liquidity of about Euros 10 billion, but cannot lend because the economy cannot grow that fast, we have to be very careful.

At the same time, Hadjiyiannis stressed, the regulator is determining the business model, not the shareholders, which could be a serious threat for financial stability at some stage, because we dont have diversification, you dont have regionality, you dont have banks that they can move in different directions.

According to Hadjiyiannis there are opportunities in the Cyprus banking system because there is tremendous room for structural reforms.

Ioannis Matsis, CEO of the Hellenic Bank, stressed that regulation is very punitive and not proportional, in that small banks face the same regulation as big banks in the eurozone, and changes all the time, which, as he said, is a problem because it deters investors as they cannot do proper forecasting.

Regulation has many different faces, some of them are good, we need to be disciplined, self regulation works to a certain extent and as the crisis proved we needed more of it, but at the same time we have the pitfalls that come with the regulation he said.

Matsis spoke of increased cost of reporting to the regulator and anticompetitive issues, as all the banks need to comply with the European regulations but some need to comply to the requirements of the local regulator as well. Some banks on the island are regulated by the ECB and others by the Cyprus Central Bank, he said.

He also noted that the market is over-banked, which creates a consolidation opportunity, but he explained that the acquiring of a locally regulated institution by an ECB regulated institution is not easy because of the increased cost of turning the institution into a systemic institution regulated by the ECB.

Matsis said that the Cypriot economy is concentrated, real estate and property driven to a great extent, and the banks must ensure that a concentrated exposure will not hit them.

Concentration and over-banking create competition, that causes a slight deterioration in lending standards which is a challenge that all of us have to live by he warned, noting that loosening of lending standards is what led to the crisis.

Source: Cyprus News Agency