An EU committee is pushing Cyprus’ co-operative credit institutions to undergo extensive restructuring and banks to impose stricter requirements for lending.
Cyprus’ co-operative credit sector will be transformed into a single banking group in accordance to new criteria set by the committee, made up of the European Commission (EC), European Central Bank (ECB) and International Monetary Fund (IMF). In the past, flexible borrowing schemes led to a high volume of non-performing loans in Cyprus.
According to the head of Central Co-operative bank Nicholas Hadjiyiannis, the associated institutions will focus on recovering non-performing loans which account to 40% of their 13bn loan portfolio.
The island’s co-ops do not have exposure to large corporate loans like in the case of commercial banks, however they have given loans to small and medium-sized companies. These companies seem to be those worst hit since the outbreak of the economic crisis.
The co-ops say they are ready to co-operate with troubled borrowers in search of solutions. Hadjiyiannis said in regard to repossession: "it will be the last step in a non-performing loan."
The IMF, ECB and EC suggested a list of actions that need to be taken over the next 3 month include the appointment of a new executive director and preparing the transfer of non-performing loans to specialised units within the sector.
Co-ops estimated capital shortfall is expected to be amended by the government’s 1.5bn capital injection, a part of the 10bn international bailout, depending on the approval of the European Commision’s directorate general on competition in January.
Apart from the transformation of the co-operative credit sector, the market for borrowing will be altered by stricter rules.
Association of Cyprus Banks’ chairman Marios Clerides stated that potential borrowers will have to provide banks with papers, certificates, tax reports and other documentation.
Clerides highlighted the usefulness of information provision, but he stressed the importance of not making lending an impossible task
He said: "We should not go from one extreme to the other, whereby someone who in the past and with minimum information could borrow from the banks or co-ops, to another environment that is so strict we will not be able to lend to anyone."