Tweet

Email

Rating agency Moody’s says in its weekly “Credit Outlook” that extension of the government’s waiver of the 20% capital- gains tax to all properties sold when proceeds are used to repay problem loans is a credit positive for the banks.

Last Tuesday, the Cypriot parliament extended the government’s waiver of the 20% capital- gains tax to all properties sold when proceeds are used to repay problem loans, and to properties sold or relinquished to credit-acquiring companies, which are the only Cypriot entities allowed to buy problems loans from banks, to settle existing debt.

Until now, this tax break was applicable only to properties sold in debt-for-asset swaps with banks.

“The benefit`s extension to other sales categories is credit positive for Cypriot credit acquiring companies because it will increase the recoverable amount of problem loans and banks should garner better prices offered for non performing loan exposures (NPEs)”, says Moody’s

The government introduced the waiver of the capital gains tax in 2015 to facilitate debt-for asset swaps as a means to reduce the larges tock of NPEs in the Cypriot banking sector. Almost all these exposures are backed by real estate collateral and around one-third of these troubled loans are terminated loans, which are mostly dated exposures to non-viable businesses or loans to individuals without sufficient means to repay

According to the report, the Bank of Cyprus Public Company Limited, the island’s largest bank, used debt-for-asset swaps to achieve about one-third of its 45% reduction in its stock of NPEs since 2015. Since 2015, Bank of Cyprus onboarded around 2,000 properties worth €1.6 billion. These properties include commercial real estate, hotels, a golf facility and vacant plots.

Moody’s says that although Hellenic Bank Public Company Ltd, the island`s third-largest domestic bank, has used debt-for-asset swaps less, having onboarded a much smaller pool of assets of around €100 million, it is expected that it will use this method increasingly following the July amendments to the legal framework, which significantly shortens the time necessary to foreclose on real estate collateral and limits a borrower`s ability to delay an asset`s foreclosure and auction.

Moody’s also expects that additional companies will enter the market, in addition to B2Kapital Cyprus Ltd, thus enhancing debt collection and providing domestic banks with additional means to reduce their high stock of NPEs.

According to the Central Bank of Cyprus, NPEs were €19 billion in March 2018, accounting for around 100% of GDP, down from €28 billion in March 2015.

Source: Stockwatch