Central Bank of Cyprus urges more effective ways to reduce red loans

NICOSIA, Nov. 28 (Xinhua) -- Central Bank of Cyprus (CBC) has directed commercial banks to seek more effective measures to reduce non-performing loans which burden their portfolios, a CBC official said on Tuesday.

CBC Governor Chrystalla Georghadji told the parliamentary finance committee that restructuring of impaired loans has slowed down, adding that urgent action is needed on the issue.

"Non-performing loans are the paramount problem banks are faced with, despite progress made. More radical measures are need to address this situation," Georghadji said.

Moody's Investor Services said in their autumn survey of the Cypriot economy that non-performing loans is the main reason they kept unchanged ratings of Cyprus to Ba3 with a positive outlook -- three notches below investment grade.

Georghadji said since the end of 2014 non-performing loans declined by 5.5 billion euros, or by 20 percent, to about 22 billion euros, or 45 per cent of their total loans portfolios.

Georghadji said CBC is in constant consultation with the banks to devise more effective solution as a prolongation of the problem is damaging to the economy.

"The European Central Bank as the direct controller of the banks is analyzing their strategies on impaired loans. CBC is waiting the results of this diligence to set its targets," Georghadji said.

She acknowledged that banks have recently transferred about one-half of impaired loans to their legal departments for action, including selling mortgaged properties.

The prospect of auctioning residential buildings by banks has led to social unrest and anxiety among people with mortgaged housing.

Georghadji said that the Cypriot banks situation has improved after local depositors pumped this year 1 billion euros in fresh deposits, reflecting a restored trust in the banking system

The troubles of Cypriot banks are a legacy of the 2013 bailout of Cyprus by the Eurogroup and the International Monetary Fund.

Cyprus's lenders set as a condition for a 10-billion-euro assistance package the winding down of the eastern Mediterranean island's second largest bank and the world's first bail-in, the capitalization of its primary lender, Bank of Cyprus by seizing 47.5 percent of deposits over 100,000 euros. Enditem