Idea of bad bank picks up in Cyprus, NPLs at 22 bln euros

The Central Bank of Cyprus (CBC) and top lending officials on the island have said they support the creation of an asset management company (AMC), or a “bad bank” that would help banks reduce their massive non-performing loans, Cyprus News Agency reported Tuesday.

“I support this proposal,” said CBC Governor Chrystalla Georghadji, recalling that the idea of an AMC was included in the draft bailout memorandum negotiated between Cyprus and international creditors (European Commission, European Central Bank and International Monetary Fund, also known as troika).

Excluded from the financial markets and faced with an ailing and oversized banking sector, Cyprus applied for a bailout in June 2012. The rescue package involved winding up the island's second biggest bank, Laiki, and slashing deposits above 100,000 euros at Bank of Cyprus overnight by half.

“The CBC was the first organisation that raised and supported the issue (of a bad bank) from the minute the Troika arrived. Unfortunately for some reason which no one is aware of and we will never know, the proposal disappeared from the table,” Georghadji said.

SEE ALSO: Cyprus wants less all inclusive deals in new tourism plan

Nicolas Hadjiyianis, Chief Executive Officer of the nationalised Cyprus Cooperative Bank said he also supports such an initiative “which would lead to a more radical and holistic approach in tackling NPLs.”

“This option could be done earlier but even now there is time for correct planning and gradual implementation,” he said. On his part, Lars Kramer, the Hellenic Bank’s Chief Financial Officer, he would support any mechanism that could help the resolution of this issue. Bad loans in Cyprus have declined to 21.9 billion euros from a peak of 28 billion euros in 2014 but still represent 44% of the total loans held by banks.