PRIVATE DEBT AND THE ESTIA SCHEME

Transcription

1 PRIVATE DEBT AND THE ESTIA SCHEME A useful tool in dealing with NPLs? 14 December 2018 Rennos Ioannides

2 PART A Private Debt: the current state of affairs 2

3 GR CY PT IT BG SI HR HU IE PL RO ES MT LV AT SK FR LT IS* BE DK NL DE EE CZ GB NO FI SE LU CYP GRC ITA ESP NLD IRL FRA PRT AUT MLT LUX BEL SVN DEU LTU FIN LVA EST SVK % % NPLs Cyprus vs Europe Cyprus is the clear winner! NPLs % in the EU (Q2 2018) 45 NPLs to GDP Ratio % in the EU (Q3 2017) EU / EEA ,6% Source: European Banking Authority Source: IMF Country Report, June 2018 Rennos Ioannides 3

4 ' 000 NPL Movement Q Q Reduction Change NPEs in bln 27,3 16,6 10,7-39% NPEs in % 47,8% 40,3% 7,5 pcp -16% Reduction June 2018: 3,3 billion (mostly BoC). A further c. 6,5 billion will be removed from the system due to Coop-AMC NPE Movement since on a quarterly basis 30,000, ,000, ,000, ,000, % 10,000, ,000, Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q1 Q NPE ( ' 000) (Left-hand axis) NPE % (Right-hand axis) Source: Central Bank of Cyprus, Analysis Rennos Ioannides 4

5 Cyprus: Flows of Non-Performing Loans Q Q42017 Migration into performing; 23% Outflow 55,5% Migration from performing; 20.7% As per the IMF, NPE improvement between Q Q has been as follows (in percentage terms of NPEs): Inflow 32,9% NPE Improvement Source % Remaining NPLs; 44% Write-offs; 15% Debt-toasset/equity swaps; 5% NPL cash repayment; 13% Interest accrued on NPLs; 12.2% Note: Data cover fixed term loans owned by locally active banks. Two banks, RCB and Astro, are excluded. Source: IMF Cyprus Report, June 2018 NPLs are declining in Cyprus, mainly due to writeoffs and the sale of loans. However, repayments have not improved significantly despite a strong economic recovery (IMF, Nov 2018) To Performing 23 (From Performing) (21) Cash Collections 13 Debt to Asset 5 Write-offs 15 (Capitalised Interest) (12) NET improvement 23 Rennos Ioannides 5

6 ' 000 NPLs Private Sector Private Sector NPE's 30,000,000 Company Number of Number of Classification employees companies Micro Small Medium Large / Corporate Total Source: CyStat 25,000,000 4,858,139 4,271,632 1,333,188 20,000,000 15,000,000 8,809,200 8,980,923 9,871, , ,246 8,240,076 7,738, ,762 5,205,875 10,000,000 5,000,000 12,579,419 12,688,051 12,037,053 10,966,646 10,801,408 10,211,966 94% 0 Q Q Q Q Q Q Source: Central Bank of Cyprus, Analysis Households SMEs Non Financial Corporations Rennos Ioannides 6

7 Private Sector Debt Overhang Debt of Households (Percent of GDP) 104,7% CY Eurozone Debt of Non-Financial Corporation (Percent of GDP) 58,0% EC s Scoreboard threshold for private debt is 133% (Cyprus 227%) 121,9% Source: Central Bank of Cyprus Rennos Ioannides 7

8 Excessive Household Debt (1/4) NPE 53% 57,1% are housing loans NPE 45% Percentage of households holding debt % of households BoC sale Has debt Has mortgage debt Has HMR mortgage Has other property mortgage Has non-mortgage debt euro area BE DE EE IE GR ES FR IT CY LV LU HU MT NL AT PL PT SI SK FI 42,4 48,4 45,1 36,8 56,8 27,1 49,3 47,2 21,2 59,1 33,5 54,6 36,9 37,1 63,1 34, ,9 38,6 36,7 57,4 23,3 34,5 20,4 20, , ,3 10, ,2 20,1 19, ,7 13,4 34,7 9,1 16,2 35,2 19,7 31,9 16,5 18,7 33,9 11,4 27,8 19 9,6 34,3 13,5 29,1 18,8 15,9 40,6 15, ,7 8,2 15,2 32,8 5,2 4,7 5,7 2,7 5,9 2,1 9,2 8,3 0,7 12 3,8 9,4 1,8 4,2 3 1,5 1,6 3,7 1,2 1,4 4,7 28,2 25,2 32,8 25,1 41,4 17,1 27,4 33,6 13, ,9 25,5 27,6 37,9 20,6 28,4 22,6 34,8 25,3 43,9 Source: European Central Bank, April 2017 Rennos Ioannides 8

9 Excessive Household Debt (2/4) Total debt, among households holding debt - distribution EUR thousands Mean p10 p20 p30 p40 p50 p60 p70 p80 p90 euro area BE DE EE IE GR ES FR IT CY LV LU HU MT NL AT PL PT SI SK FI 68,2 82, ,4 124,9 27,9 70,7 70,5 46,7 128,1 22,4 178,4 12,7 46,7 129,9 50,1 13,8 62,8 17,1 14,7 75,7 1 2,2 0,5 0,2 1 0,9 3 1,1 1,3 3,1 0,2 4,4 0,3 0,4 3,9 0,6 0,2 1,9 0,3 0,4 2,5 3 7,2 1,8 0, ,2 3,3 3 16,3 0,6 11, ,3 1,5 0,5 7,2 1 0, ,5 3,6 1,4 9 3,1 15,8 6,5 6 32,1 1,4 25,1 2,6 4 31,6 3,4 0,8 16,5 1,6 1,6 11, , ,7 6 30,6 12, ,8 2,9 41,8 3,8 9 56,8 7 1,4 32,4 2,8 3,3 21,1 28,2 49,8 15,2 6, ,1 43, ,7 7,2 89,8 6,2 19,3 86,7 12,4 2,4 48, , ,1 30,1 13,1 106, ,1 55, , ,7 34,8 120,2 25,1 4,1 63,8 8 9,8 65,2 78, ,9 25, ,9 87, ,8 22,6 233,3 13,1 57, ,9 9,3 81,1 12,9 16,6 96, ,1 92,2 42,1 204,5 49,4 117,2 124, ,9 35,2 300,1 18,9 88,2 205,9 83,5 22, ,8 25,4 134,4 177,1 190, ,3 167,6 173, ,4 131,9 290,5 144,5 46, ,5 40,5 190,3 Payments for debt - conditional medians EUR, per month Payments for household's total debt (flow) Payments for mortgages (flow) Payments for HMR mortgages (flow) Payments for other property mortgages (flow) Payments for non-mortgage debt (flow) Payments for other non-mortgage loans (flow) euro area BE DE EE IE GR ES FR IT CY LV LU HU MT NL AT PL PT SI SK FI 443,4 672,8 365, ,7 858, , , ,2 146, ,2 664, , ,4 457, , ,4 392,6 674, , ,8 193, ,5 660,8 596,7 209, , ,8 146, , , , , ,7 197, , , , ,4 347, , , , ,5 229,2 229, ,1 172,8 185, , , , ,5 229,2 229, ,1 172,8 185, Source: European Central Bank, April 2017 Rennos Ioannides 9

10 Excessive Household Debt (3/4) Financial burden indicators, median ratios Ratio in % Debt to asset ratio of indebted households Debt to income ratio of indebted households Debt service to income ratio, all indebted households Debt service to income ratio, households with debt payments Mortgage debt service to income ratio of households with mortgage debt Loan to value ratio of main residence Net liquid assets as a fraction of annual gross income euro area BE DE EE IE GR ES FR IT CY LV LU HU MT NL AT PL PT SI SK FI 25,7 18, ,3 38,5 17,4 22,6 20,4 18,4 22,9 28,2 22,2 20,2 9, ,1 6,8 37,8 8,6 12,6 35,3 71,8 79,8 38,1 38,3 102,1 53,3 141, , ,8 114,1 60,3 55,3 177,1 32,7 15,2 198,5 24, , ,3 5,9 7,9 12,9 8,9 18,6 16,6 9,3 30,4 9,1 14,8 12 9,8 11,3 2,1 8,8 15,1 9,1 9 10,8 13,5 13,4 8,9 9,7 14,5 16,8 19, ,3 35,7 11,4 16,5 16,4 13,4 12,9 5,8 9,9 16,2 12,6 11,1 11,3 15,8 13,2 11,5 9,8 15,7 18,2 18,1 21,5 15,8 34,2 14,1 17,6 16, ,7 12,6 15,6 17,1 13,7 11, ,6 42, ,7 42,7 41,7 45,1 37,9 42,1 57,7 34, ,8 60,2 24,8 33,2 60,1 32,7 34, , ,3 8,7 5,1 2,8 16,7 18,7 19,4 8,9 0,4 20,8 9, ,2 34,2 3,9 14,4 1,7 7,8 10,8 Median debt to income ratio - breakdowns Ratio in % Total population ALL Income Bottom 20% 20-40% 40-60% 60-80% 80-90% % Source: European Central Bank, April 2017 euro area BE DE EE IE GR ES FR IT CY LV LU HU MT NL AT PL PT SI SK FI 71,8 79,8 38,1 38,3 102,1 53,3 141, , ,8 114,1 60,3 55,3 177,1 32,7 15,2 198,5 24, ,7 (2.4) (8.2) (3.3) (4.0) (5.3) (6.9) (9.3) (5.0) (5.8) (33.6) (8.7) (10.6) (2.9) (10.3) (9.9) (2.9) (1.4) (10.1) (1.9) (5.5) (2.4) 101,1 49,1 26,4 95,1 45,3 328,7 405,3 36,6 149,1 832,5 N 83,7 178,1 37,2 178,1 17,1 12,7 216,3 41, ,3 (13.7) (34.5) (4.7) (86.9) (10.0) (124.5) (92.5) (7.8) (46.2) (719.0) (44.3) (32.4) (32.9) (60.0) (3.1) (2.5) (89.3) (16.4) (37.1) (4.5) 42,4 65, ,3 25,2 47,2 217,6 34,6 56,5 706,6 23,9 139,6 60,6 31,9 140,4 17,4 13,1 130,5 26,1 50,3 40,4 (4.4) (34.4) (4.2) (5.7) (7.5) (19.8) (49.9) (5.9) (13.1) (232.2) (122.8) (62.3) (9.6) (21.2) (34.2) (3.9) (2.3) (30.2) (4.0) (17.1) (3.6) 58,4 82,1 28,3 23,5 79,1 63,2 162,7 47,8 54,6 240,5 19,9 138,3 68,9 54,6 195,4 26,2 12,8 290,9 23,4 54,4 59,5 (5.9) (21.8) (9.5) (7.6) (18.9) (22.0) (29.6) (8.6) (14.5) (61.2) (19.4) (25.9) (8.5) (34.3) (29.8) (4.0) (2.7) (35.1) (4.8) (20.8) (5.2) 82,3 110,5 51,3 32,5 148,3 61,3 147,4 105,6 88,1 203,9 48,2 106,2 59,2 77,3 213,4 59,2 16,3 229, ,6 103,4 (6.5) (15.7) (8.5) (10.5) (12.8) (30.8) (17.8) (14.5) (17.3) (43.6) (18.8) (25.1) (4.8) (39.3) (28.2) (12.4) (3.8) (19.2) (4.2) (13.8) (5.6) 94,5 97,6 69,3 51,5 138,3 33,4 112,4 114,9 59,9 257,3 37,5 97,9 56,1 78,7 171, ,6 207,9 17,5 36,6 106,4 (8.0) (24.4) (9.4) (14.7) (11.7) (12.1) (24.8) (11.2) (14.9) (77.8) (26.0) (24.3) (4.0) (33.2) (30.3) (16.8) (9.1) (16.2) (3.8) (11.0) (4.9) 81,5 54,3 67,7 57,6 125,7 30,8 73,8 95,6 46,7 141,5 42,9 99,2 39,4 60,4 138,9 63,3 30,2 132,9 23, ,4 (3.5) (12.3) (11.4) (10.0) (10.7) (8.3) (15.4) (6.7) (12.0) (31.6) (19.4) (17.0) (4.5) (43.0) (19.8) (11.7) (9.1) (16.5) (4.6) (13.6) (4.2) Rennos Ioannides 10

11 Excessive Household Debt (4/4) Median debt service to income ratio, among households with debt payments - breakdowns Ratio in % Total population ALL Income Bottom 20% 20-40% 40-60% 60-80% 80-90% % euro area BE DE EE IE GR ES FR IT CY LV LU HU MT NL AT PL PT SI SK FI 13,5 13,4 8,9 9,7 14,5 16,8 19, ,3 35,7 11,4 16,5 16,4 13,4 12,9 5,8 9,9 16,2 12,6 11,1 11,3 (0.2) (0.6) (0.4) (0.4) (0.3) (1.1) (0.6) (0.4) (0.5) (2.1) (1.3) (0.7) (0.6) (0.5) (0.7) (0.5) (0.4) (0.5) (0.5) (0.9) (0.2) 27,5 30,6 6,5 61, ,7 47,3 22,6 41,7 145 N 24,6 52,6 N 20,3 10,8 15,2 42,4 61,5 27,6 4,2 (2.3) (12.6) (2.7) (25.7) (3.6) (192.1) (5.6) (3.4) (12.3) (220.1) (5.3) (8.9) (6.0) (3.1) (2.0) (4.8) (40.2) (10.9) (1.1) 17,4 20,4 8,1 17,1 17,7 20,1 28,4 17,2 21,5 64,5 N 23,8 25,4 22,8 13 8,5 11,2 25,4 21,7 17,9 8,9 (0.7) (2.6) (1.9) (4.0) (1.7) (3.1) (2.6) (1.4) (2.5) (15.5) (2.4) (2.0) (5.1) (2.5) (2.0) (0.9) (2.1) (2.9) (3.5) (0.8) 14,5 16,3 8,7 14,3 16,8 21, ,5 15,5 30,9 14,1 18,8 18,4 15,1 13,9 5 10,8 21,3 13,1 12,9 11,2 (0.5) (1.6) (0.8) (1.9) (0.9) (2.0) (1.2) (1.3) (1.2) (5.2) (3.9) (1.8) (1.0) (1.7) (2.0) (1.1) (0.9) (0.8) (1.5) (1.3) (0.5) 13,3 14,3 9,8 9,5 15,1 16,2 18,8 18,9 14,2 31,2 12, ,9 13,9 14,1 6,1 9,3 14,9 11,6 10,1 12,8 (0.4) (1.1) (0.9) (0.8) (0.6) (1.8) (1.1) (0.8) (0.5) (3.1) (2.2) (1.1) (0.8) (1.0) (1.4) (1.4) (1.1) (0.7) (0.6) (1.8) (0.3) 12,2 10,7 9,9 8,3 13,2 10,8 12,8 17,9 10,7 25 9, , ,7 4,6 8,2 12,4 9,5 8,6 12,2 (0.6) (1.1) (0.9) (0.9) (0.5) (1.4) (1.6) (0.8) (1.1) (5.3) (2.6) (1.3) (1.0) (1.1) (1.6) (1.4) (1.0) (0.6) (0.8) (1.8) (0.4) 9,7 8 8,1 6,7 11,7 8,1 9,5 16,9 7,5 23 8,6 10,7 7,9 10,5 10,2 4,1 7 9,4 8,4 6 11,6 (0.4) (1.1) (0.7) (0.5) (0.5) (1.5) (0.8) (0.8) (0.7) (3.6) (1.5) (1.1) (0.6) (1.4) (1.5) (1.1) (0.7) (0.6) (0.9) (1.9) (0.3) Development of Financial Burden indicators, Medians Cyprus Euro area Wave 1 ( ) Wave 2 (2014) Wave 1 ( ) Wave 2 (2014) Debt to income ratio 1,57 2,51 0,63 0,72 Debt service to income ratio 0,23 0,36 0,14 0,14 Source: European Central Bank, April 2017 Rennos Ioannides 11

12 NPE ratio Banks: what s next? (1/3) Possibly still under-provisioned? NPE ratio versus provision coverage ratio by country 50 GR CY 40 High NPE countries IE PT IT BG HR SI HU 9 RO PL 5 ES EU AT 4 MT SK DK LT FR 3 LV BE NL 2 DE FI NO GB CZ 1 EE SE LU Provision Coverage ratio Source: European Banking Authority Rennos Ioannides 12

13 Banks: what s next? (2/3) Regulations getting tougher New Provisioning Guidance (ECB Guidance to Banks on NPLs, Addendum) to be applied to all new NPEs from Unsecured Part After two years of NPE vintage 100% Secured Part After three years of NPE vintage 40% After four years of NPE vintage 55% After five years of NPE vintage 70% After six years of NPE vintage 85% After seven years of NPE vintage 100% Rennos Ioannides 13

14 Banks: what s next? (3/3) Regulations getting tougher Approval dated 31 October 2018 by the Council of the EU on capital requirements for NPLs will go to the European Parliament to become a Directive ( law ) Statutory Prudential Backstops Proposal to amend the Capital Requirements Regulation: o Introduction of a statutory prudential backstop common minimum coverage levels for newly originated loans that become non-performing o Unsecured non-performing exposures to be covered within three years, 35% in year 2, 100% in year 3 o Secured non-performing exposures to be fully covered within nine years (in pre-determined annual step factors starting in year 3) Rennos Ioannides 14

15 PART B The Estia Scheme: key provisions 15

16 Estia Scheme: objectives In the words of the Ministry of Finance: 1. Protect primary residences 2. Facilitate vulnerable borrowers to service their loans 3. Contribute to the stabilisation of the banking sector and to sustainable economic growth 4. Contribute to the management of the most problematic segment of NPLs 5. Safeguard (i) the public perception of fairness and equity, (ii) limit moral hazard and (iii) avoid the abuse of the scheme by strategic defaulters Rennos Ioannides 16

17 Estia Scheme: facts and figures Facts and figures from the Ministry of Finance: in million NPLs possibly eligible for Estia (around borrowers) Total Impairment Provisions (1.904) Net Book Value Provision Coverage 56% Market Value of Primary residences Market Value of other collateral assets 485 Rennos Ioannides 17

18 Estia Scheme: eligibility criteria(1/3) 1. Collateral Loan Status - Demographics Description Collateral Loan status Demographics Criterion Main residence At least 20% of borrower s loans to have been NPL > 90 days past due as at 30/09/2017. Loans which were subsequently restructured are excluded Permanent resident in Cyprus since 2013 Can be a legal entity as well Rennos Ioannides 18

19 Estia Scheme: eligibility criteria(2/3) 2. Household set-up related income criteria Household set-up Couple with 4 or more dependents Couple with 3 dependents Couple with 2 dependents Couple with 1 dependent Couple with no dependents Single Gross Household Income Up to pa Up to pa Up to pa Up to pa Up to pa Up to pa Rennos Ioannides 19

20 Estia Scheme: eligibility criteria(3/3) 3. Household asset wealth Asset Category Market Value Primary residence Up to (average of 2 valuations) Other Assets (real estate, motor vehicles, financial assets etc) Cash and / or bank deposits Up to 80% of primary residence market value with a maximum cap of Relates to net value (gross market value, as per indexed LRO valuation for real estate assets, minus non-primary residence loans) Any excess over 20% of net other assets, to be used to reduce loans Rennos Ioannides 20

21 Estia Scheme: key terms 1. Primary residence collateralised loan reduced to the lower of outstanding loan amount at restructuring date and the market value of the primary residence. Residual loan is warehoused and fully written off once restructured loan is fully paid off (but see point 2 below). Reduction of at least 5% in all cases 2. If there are other collaterals (on top of the primary residence), the residual loan is restructured at lower of the residual amount and the market value of these other assets minus an undefined haircut on the asset (at the discretion of each participating bank) 3. Loans rescheduled (subject to compliance with viability criteria) over maximum of 25 years; if borrower > 65 years old, duration extended for 5 years 4. Interest rate: first 7 years Euribor + 2,5% (total interest rate cap of 3,5%), from year 8 onwards Euribor + 2% (no cap) 5. Borrower pays 2/3 of restructured loan instalment, the state covers 1/3 on an annual basis Rennos Ioannides 21

22 Estia Scheme: high-level process 1. Each bank must decide if it will participate in the scheme. In such a case, each bank will sign a Memorandum of Understanding with the responsible governmental agency. Each bank will have to offer the scheme to ALL eligible borrowers without exception 2. Applicants submit application to their bank with all required documentary evidence (household income of last two years, asset values, real estate and financial asset statements of three years, written consent for documentary evidence verification) 3. Bank checks against the scheme s eligibility criteria and against its own viability / debt servicing ability criteria 4. Application is submitted to the governmental agency which assesses the application, verifies the evidence submitted, informs both the applicant and the bank in writing 5. If the bank assesses a proposition as non-viable, the governmental agency will decline the application and will report on a monthly basis on those declines to the Ministry of Finance which will appraise eligibility to other suitable schemes Rennos Ioannides 22

23 PART C The Estia Scheme: is it fit for purpose? 23

24 Estia Scheme: fit for purpose? (1/4) Verdict: a very useful tool in managing this delicate and substantial segment of the loan portfolio But: still misses key objectives (despite the welcome recent amendments in the income and asset criteria compared to the previous benchmarks) 1. Captures borrowers with loans which were 90+ days past due at 30/09/2017 which will be assessed as being viable to sustain the reduced restructured loan instalments: - Excludes those which were previously or subsequently restructured - Excludes those conscientious borrowers which have kept paying up their loans by making ends meet (changing their lifestyle, reducing expenses) - Excludes all those truly deprived households which cannot service even the reduced restructured loan instalments (ie, will not meet the viability criteria). Financial hardship is likely one of the main contributors to a large stock of NPLs (IMF) - Includes all those strategic defaulters who may have never paid a single instalment against their loans or who were not really affected by the economic crisis Rennos Ioannides 24

25 Estia Scheme: fit for purpose? (2/4) 2. The recent amendments which link income criteria with the structure of the household are in the right direction. But still quite generous: Household Size Estia Income Criteria Median Annual Gross Income Mean Annual Gross Income 1 Up to Up to Up to Up to Up to Up to Source: European Central Bank, April 2017 Rennos Ioannides 25

26 Estia Scheme: fit for purpose? (3/4) 3. The market value of the primary residence covers the majority of households: Real assets, value of HMR - distribution EUR thousands Mean p10 p20 p30 p40 p50 p60 p70 p80 p90 euro area BE DE EE IE GR ES FR IT CY LV LU HU MT NL AT PL PT SI SK FI 204,4 270,4 231,4 69,2 189, ,6 214,8 215,2 230,2 30,3 647, ,4 243,9 288,7 87,4 108,4 105,8 59,9 187,5 57,5 133,9 56 9, ,3 60,1 73, , , ,9 29,1 35, ,9 89,1 165, , ,2 109, ,2 359,4 13, ,7 35, ,6 119, , , ,3 145,4 181,4 162,9 42, ,6 145,6 220, , ,4 130, ,9 12, , ,8 78,1 72, , , ,3 182, ,1 555,6 26,1 180,6 219, ,4 91,3 87, , , , ,3 204, , , ,8 79, , , , ,2 26, ,8 232,3 271,4 326,5 95, , , ,7 240, , ,3 269, ,7 119, ,1 257,6 362, , ,5 377, ,2 61, , , ,3 332,7 Source: European Central Bank, April 2017 Rennos Ioannides 26

27 Estia Scheme: fit for purpose? (4/4) 4. The net value of other assets (up to ) covers the majority of households: Net Household Wealth (NB: includes the primary residence) Median Mean Bottom 20% % % % % % Source: European Central Bank, April 2017 Rennos Ioannides 27

28 PART D Some Recommendations: looking ahead 28

29 Recommendations on Estia (1/5) 1. Further refinement of key eligibility and other criteria for Estia, for example: o Link primary residence market value with income bands and the household structure and size o Re-visit downwards other assets net value o Include restructured loans (pre and post 30/09/2017) o Remove never-paid-anything strategic defaulters. Introduce for example minimum payment benchmark to be eligible, eg at least 10% of originally (or amended) scheduled instalments to have been paid over the time-life of the loan; run asset alienation searches (real estate, cars) eg over 5 years and introduce criteria for exclusion for strategic defaulters o Apply uniform and objective decision-making rules and viability criteria across all banks instead of each bank using its own assessment criteria o Freeze foreclosures on these properties until scheme is fully up and running Rennos Ioannides 29

30 Recommendations on Estia (2/5) o o o Regularly (eg every three years) re-assess eligibility criteria as circumstances change Change requirement for all guarantors signing all restructuring documents. Written Notification to suffice. Not only for Estia but for all restructurings Subsidised debt counselling to physical persons and SMEs (not only for Estia but for all cases) 2. Introduce schemes to protect truly deprived households which cannot meet the viability criteria: o o o o Set up mortgage to rent (sale and leaseback) schemes Social housing schemes House trade-down schemes and electronic platforms (sale of homes, trade down for lower value homes or rental, similar loan write-down benefits to apply) Run in parallel to Estia Rennos Ioannides 30

31 Recommendations - Judiciary (3/5) 3. Immediate revamp of Judicial System to make it fit for purpose We currently suffer from justice delayed is justice denied : Doing Business 2018: 138 th out of 190 countries on contracts enforcement Global Competitiveness Index 2018: 73th out of 140 countries on efficiency of legal system in settling disputes o Introduce (and adhere to) maximum time limits (eg civil actions start to finish of maximum two years) o Revamp civil law and rules o Review corporate legislation (eg receiverships, audited accounts filing, simplify examinership up-front administrative requirements etc) o Set-up specialised benches for insolvency cases (receiverships, examinerships, liquidations and bankruptcies, foreclosure etc) o Fully automate case management and filing o Arbitration o Subsidised debt counselling for physical persons and SMEs Rennos Ioannides 31

32 Recommendations - Strategy (4/5) 4. National Plan Ahead Strategy for the management of Private Debt: o Business Plan Blueprint o Governed by board of independent experts o Project based approach with milestones and full accountability o Full, uniform and universal segmentation of all borrowers and related strategies Rennos Ioannides 32

33 Recommendations - Lessons (5/5) 5. Learn from the past and incorporate in systems processes: o History has a stubborn tendency of repeating itself o Humans have a tenacious inclination to have a short memory o Excessive liquidity in the banking sector + cut-throat competition for a share of a finite pie + high cost base of banks may lead to loosening of credit standards, unsustainable net interest margins and the risk of another round of lax lending cycle? o Rising economic sentiment, rising real estate prices, rising rentals, minimal returns on deposits risky ingredients for a possible new real estate boom and a new vicious circle? o o Critical need for more assertive and intrusive banking supervision (on-site and off-site) and monitoring, and Full credit bureau information (all credits, not just banks, historical track record, all legal actions) Rennos Ioannides 33

34 THANK YOU! Rennos Ioannides Phone