Target setting for banks’ restructurings of loans presenting arrears over 90 days, CBC says

Target setting for banks’ restructuring of loans presenting arrears over 90 days and handling of loans with arrears less than 90 days, presents delay, according to the Central Bank of Cyprus.

The CBC issued a press release regarding its announcement at the beginning of September 2015, when it set targets for four indicators in its endeavour to incentivise banks to increase the volume and improve the quality of restructurings for loans presenting arrears over 90 days but also to take proactive action for the loans presenting arrears over 30 days to prevent them from becoming non-performing.

The Bank had set targets for four indicators that were applied to the whole loan portfolio and to sub-portfolios (residential mortgage loans to households, other loans to households, loans to non-financial corporations with total balances of up to Euros 1mn and loans to non-financial corporations with total balances of over Euros 1mn) .

It is noted that the current framework of targets is under revision by the CBC since the main purpose for which they had been set, is no longer fulfilled.

‘At this stage, the aim is to boost banks’ efforts to reduce their stock of non-performing loans through direct measures, taking into consideration the NPL Guidance of the European Central Bank (ECB) and the banks’ related strategies. The new framework will be implemented within 2018. To this end, this is the last publication with the existing targets’ the CBC says.

It notes that the overall picture is that, for the aggregate of the banks that are subject to these restructuring targets, there was an over-performance of the target for indicator 1, whereas the targets for the remaining indicators (indicator 2, indicator 3 and indicator 4) underperformed.

More specifically, the target for indicator 1 (Proposed sustainable solutions) was 14,73% and the actual realisation was 21,08%. The target for indicator 2 (Concluded sustainable solutions) was 15,13% and the actual realisation was 10,42%, presenting a significant under-performance.

For indicator 3 (Loans that have been restructured and present arrears of less than 8 days) the target was 71,91% and the actual realisation was 68,21%. The biggest under-performance was observed for the target for indicator 4 (Loans that presented arrears of 31-90 days at the beginning of the quarter but by the end of the quarter do not present any arrears), which was 43,78% whereas the actual realisation 25,55%.

The CBC says that during the second quarter of 2017 the amount of the loans that are subject to the targeting framework decreased by about Euros 125,4 million compared to a decrease of Euros 212 million during the first quarter of 2017 and Euros 597 million during the fourth quarter. The targeting framework covers only fixed term loans that have not been terminated and does not include revolving facilities such as overdraft accounts. It is noted that one of the aims of the targeting framework is to provide incentives to the banks to review the loan portfolio presenting arrears over 90 days which is not terminated and decide whether a viable restructuring can be offered which will gradually allow them to be classified as performing.

‘The analysis carried out by the CBC and the discussions with banks reveal the continuing delay in the process of examining requests for restructurings caused by factors such as the failure of borrowers to submit timely and adequate information on their income, the time spent in discussions with customers before they can finalise a restructuring proposal and, in some cases, setbacks from borrowers changing their minds on a restructuring offer to which they had initially agreed to’, it is stated.

In addition, the CBC says that remaining cases are complex and difficult to conclude in a sustainable restructuring solution, while the success of some restructurings depends on the ability to realise the collateral held against the NPLs within the timeframe agreed.

‘As far as the under-performance for indicator 4 is concerned, a substantial part is due to the fact that the banks, through their actions, manage to control, to a large extent, the loans that present arrears between 31 and 90 days from developing into non-performing but are unable to reduce their arrears to zero days as prescribed by this indicator. Banks continue to take measures to improve their restructuring performance and to achieve the targets set’ the CBC concludes.

Source: Cyprus News Agency