As BoC holds 2016 AGM, strategic defaulters remain a challenge

Bank of Cyprus is holding its 2016 annual general meeting on Tuesday, eight days after the island’s largest lender sent shockwaves through its shareholder base with its decision to increase provisions by €500m.

The bank, which last year posted an after-tax profit of €64m, reduced its non-performing loan ratio to 52 per cent or €10.4bn in March, completely repaid its outstanding emergency liquidity to the central bank in January, and in the same month had its share listed on the London Stock Exchange. It also issued a €250m tier 2 security but still has a long way to go, said the Limassol-based financial consultant George Markides in an interview.

In its effort to reduce its non-performing loans, the bank needs “to first target strategic defaulters,” both individual borrowers and legal entities, “able but unwilling to service their loans,” Markides said.

However, this “requires a further updating of the legal framework, which is four years overdue,” Markides continued.

He was referring to the foreclosure and insolvency law, which the parliament half-heartedly updated as part of Cyprus’s bailout terms more than two years ago, and also the introduction of a law allowing banks to securitise loans, which is still pending.

Bank of Cyprus, which was asked in March 2013 as part of Cyprus’s cash-for-reforms agreement to convert 47.5 per cent of its customers’ uninsured deposits into equity, still needs to show results in restructuring the loans of strategic defaulters, who take advantage of the toothless legislative framework on foreclosures and insolvencies, said Markides.

However, the political environment remains unfavourable, he said. As presidential elections loom in February 2018, and with incumbent President Nicos Anastasiades likely to seek re-election, both the government and the parliament are unlikely to do anything that would upset strategic defaulters, Markides said.

Following the increase in provisions last week, Bank of Cyprus is expected to post a €550m loss this year and return to profitability in 2018.

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