Speaking to the Cyprus News Agency, Guzzo said it would be a mistake, after the efforts made thus far to strengthen public finances, to use the government’s balance sheet in order to fix the banks’ balance sheets, and noted that attracting private funds to create a privately-owned and funded AMC could be a viable alternative.
Overall non-performing loans in the Cypriot banks in September stood at 47.8%, though the Central Bank of Cyprus said that in absolute numbers the figure dropped by €50.1 million relative to the previous month’s €27.3 billion.
“If by asset-management company we mean a vehicle funded (fully or partly) with taxpayers’ money to deal with the large amount of NPLs in the banking system, it is really hard to see any room for it in Cyprus,” Guzzo said.
“After all the efforts made to strengthen public finances, it would be ill-advised to use the public sector balance sheet to clean up the balance sheet of the banks.”
But even a privately-funded AMC would require carefully-planned mechanisms to function properly.
“We should be mindful of the challenges in transferring assets at a price agreeable to both the private investor and the bank in the absence of state funding or government guarantees,” he said.
“Moreover, banks have already established their own internal workout units, and it is not clear that a third-party AMC would be more efficient at restructuring NPLs than the banks themselves.”
Echoing the charges fired against parliament recently by both Bank of Cyprus CEO John Patrick Hourican and the Finance ministry’s permanent undersecretary Christos Patsalides, Guzzo said the new insolvency framework is generally an important step forward, but “there are indeed some provisions which risk weakening its effectiveness”.
“For example, provisions allowing non-viable debtors to apply to court to suspend debt enforcement and bankruptcy procedures may result in unjustified delays,” he said.
“Effective implementation of the new laws is also essential. If needed, adjustments to the legislation and its implementation set-up should be considered.”
The IMF representative said that, while most of the work in laying the ground for resolving the NPLs problem has been done, certain further targeted steps may help the effort, such as improving the efficiency of civil procedures and limiting the delays in courts.
“However, it is now mainly a matter of applying the available tools,” he said.
According to Guzzo, last November’s review of Cyprus’ adjustment programme by Troika delegates was the penultimate one, but the post-MoU world in Cyprus has not yet been defined.
“Post-programme arrangements will be discussed with the country authorities in due time,” he said.
Source: Cyprus Mail
