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By Georgios Georgiou and Paul Tugwell
(Bloomberg) --Cyprus’s banks should continue reducing their non-performing loans as soon as conditions allow and foreclosures halted by the pandemic resume, Central Bank of Cyprus Governor Constantinos Herodotou said.
The suspension of foreclosures due to the Covid-19 outbreak and the freezing of NPL portfolio sales are expected be be temporary “and the current conditions will reverse so that the banks’ balance sheet rationalization can continue,” Herodotou, who is also a member of the European Central Bank’s Governing Council, said in response to Bloomberg News questions.
While all European banks operate in a difficult economic environment with historically low interest rates, Cyprus’s banks have the additional challenge of needing to resolve NPLs dating back to the 2013 crisis, he said.
Before the pandemic, the country’s lenders showed “significant progress” on that front, primarily through the sale of NPL portfolios. There might even be other options.
“We should of course always pro-actively look at contingency plans or complementary solutions, and overall the CBC is implementing such an approach,” he said.
The European Union’s historic rescue fund is expected to support a strong and more uniform recovery, thereby supporting the effectiveness of monetary policy in the euro area. That should also further alleviate the pressure on sovereign debt and bond yields, Herodotou said.
“The strengthening of solidarity sends a signal to investors and to the world, that there is the determination to achieve recovery in all jurisdictions,” he said. “Hopefully, it will also contribute toward a more integrated Europe.”
The EU aid is of huge importance to southern European countries such as Cyprus, given the impact of the virus on tourism. The Cypriot economy will contract 7% in 2020, according to the latest results of a Bloomberg News survey.