Cyprus-Forum.com

[Robin Hood]

Central bank drafting proposals to allow sales of bank loans to third parties.

Has anybody actually worked out what this is all about and the consequences for Cyprus if it goes ahead as it has been planned by the IMF/EU/ECB? Like the bail-in the only winners will be the Banks!

http://cyprusbusinessmail.com/?p=1629

If these Asset Backed Securities (ABS) otherwise known as the collateral backing NPL’s, are bought up by the ECB the only benefit it will provide is to ensure the Cyprus Banks recover their losses due to not recovering the interest on these loans, some over many years. Cyprus, the Cyprus economy and the Cypriots will lose out ...... big time.

The banks will get their outstanding interest from the ECB; the ECB will make a profit when they sell off the ABS’s and those buyers will either get their profit from the beneficial owners of the property or evict them and sell the property on. Those that deliberately defaulted (Developers) will still not face any legal action and a lot of people forced into default by the imposition of the bail-in and the consequences of bankruptcies and subsequent rise in unemployment, will lose their homes.

Although I am not ‘political’ ........ in this instance I think AKEL are trying to do the right thing for Cyprus.

[Get Real!]

Those that lost their jobs while paying off a mortgage should look at all their paperwork where they may be pleasantly surprised to find that there’s an (obligatory) insurance policy they were paying all along to back their mortgage in case of a default. Wasn’t this requested by law? Mine does.

[Robin Hood]

Those that lost their jobs while paying off a mortgage should look at all their paperwork where they may be pleasantly surprised to find that there’s an (obligatory) insurance policy they were paying all along to back their mortgage in case of a default. Wasn’t this requested by law? Mine does.

It is many years since I had a mortgage so I wouldn't know but we really need to look at the much bigger picture. Once these ABS's are sold off to commercial enterprises by the ECB, the Cypriot government will have no say when people start losing their homes. What about those that have paid for their properties in full but then find out the property/land was mortgaged, a fact they were not aware of as the Lawyer they used was in bed with the developer?

I don't have a lot of sympathy for those who took on ridiculous mortgages they clearly could not afford or those who went for Swiss Franc mortgages but, those that are now in trouble through no fault of their own should be protected. This cannot happen if the government has no control over events that transpire from an IMF/EU/ECB garage sale!

[CBBB]

Central bank drafting proposals to allow sales of bank loans to third parties.

Has anybody actually worked out what this is all about and the consequences for Cyprus if it goes ahead as it has been planned by the IMF/EU/ECB? Like the bail-in the only winners will be the Banks!

http://cyprusbusinessmail.com/?p=1629

If these Asset Backed Securities (ABS) otherwise known as the collateral backing NPL’s, are bought up by the ECB the only benefit it will provide is to ensure the Cyprus Banks recover their losses due to not recovering the interest on these loans, some over many years. Cyprus, the Cyprus economy and the Cypriots will lose out ...... big time.

The banks will get their outstanding interest from the ECB; the ECB will make a profit when they sell off the ABS’s and those buyers will either get their profit from the beneficial owners of the property or evict them and sell the property on. Those that deliberately defaulted (Developers) will still not face any legal action and a lot of people forced into default by the imposition of the bail-in and the consequences of bankruptcies and subsequent rise in unemployment, will lose their homes.

Although I am not ‘political’ ........ in this instance I think AKEL are trying to do the right thing for Cyprus.

When a benk sells part of its loan portfolio at say 20c to the €, that is all it will get, it won't receive any further benefits from those loans. It is then up to the company that purchased the loans to collect whatever it can, up to the full outstanding amount.

The regulation also stipulates that any company that purchases loans must be regulated by the Cyprus Central Bank, so foreign companies can't just snap them up.

[Paphitis]

Those that lost their jobs while paying off a mortgage should look at all their paperwork where they may be pleasantly surprised to find that there’s an (obligatory) insurance policy they were paying all along to back their mortgage in case of a default. Wasn’t this requested by law? Mine does.

It is many years since I had a mortgage so I wouldn't know but we really need to look at the much bigger picture. Once these ABS's are sold off to commercial enterprises by the ECB, the Cypriot government will have no say when people start losing their homes. What about those that have paid for their properties in full but then find out the property/land was mortgaged, a fact they were not aware of as the Lawyer they used was in bed with the developer?

I don't have a lot of sympathy for those who took on ridiculous mortgages they clearly could not afford or those who went for Swiss Franc mortgages but, those that are now in trouble through no fault of their own should be protected. This cannot happen if the government has no control over events that transpire from an IMF/EU/ECB garage sale!

The banks are selling some bad debts or non conforming loans. They would not be selling their performing loans.

Usually, when a bank does that, they end up losing money.

it's not a good thing for a bank to do this, and they only usually do it because they have to in order to recoup some money instead of face the prospect of potentially losing a lot more money.

The consumer, ordinarily in other countries would have lost their house. Because in Cyprus this is more difficult, you end up with a banking Collapse followed by a "Bail In" and receding GDP and high unemployment.

But on top of this, the Cypriot banks were far too easy with lending money it would seem judging purely by the number of bad debts to the Banks.

But all up it just goes to show, that in Cyprus there was little regulation or the banks were not following the regulations. You hear the saying among Cypriots:

"there are laws but no one abides by them"

"and the State does not enforce them"

All this is now changing with the Troika.

[DT.]

Those that lost their jobs while paying off a mortgage should look at all their paperwork where they may be pleasantly surprised to find that there’s an (obligatory) insurance policy they were paying all along to back their mortgage in case of a default. Wasn’t this requested by law? Mine does.

It is many years since I had a mortgage so I wouldn't know but we really need to look at the much bigger picture. Once these ABS's are sold off to commercial enterprises by the ECB, the Cypriot government will have no say when people start losing their homes. What about those that have paid for their properties in full but then find out the property/land was mortgaged, a fact they were not aware of as the Lawyer they used was in bed with the developer?

I don't have a lot of sympathy for those who took on ridiculous mortgages they clearly could not afford or those who went for Swiss Franc mortgages but, those that are now in trouble through no fault of their own should be protected. This cannot happen if the government has no control over events that transpire from an IMF/EU/ECB garage sale!

The banks are selling some bad debts or non conforming loans. They would not be selling their performing loans.

Usually, when a bank does that, they end up losing money.

it's not a good thing for a bank to do this, and they only usually do it because they have to in order to recoup some money instead of face the prospect of potentially losing a lot more money.

The consumer, ordinarily in other countries would have lost their house. Because in Cyprus this is more difficult, you end up with a banking Collapse followed by a "Bail In" and receding GDP and high unemployment.

But on top of this, the Cypriot banks were far too easy with lending money it would seem judging purely by the number of bad debts to the Banks.

But all up it just goes to show, that in Cyprus there was little regulation or the banks were not following the regulations. You hear the saying among Cypriots:

"there are laws but no one abides by them"

"and the State does not enforce them"

All this is now changing with the Troika.

Actually Paphiti you're wrong on 2 counts here.

Banks do sell performing loans and will sell in the future as well. The discount they are sold at is roughly equal to the NPV of the loans. Secondly the banks don't necessarily lose money when they sell NPL's due to the provisions they've had to make for these loans on their balance sheet. Our fund has bought NPL's at 7 cents to the Euro (retail non-secured) and the banks were more than happy to sell them. Rather than maintain these loans and have them produce adverse effects on the banks Stress tests and AQR's its far better for the bank to sell.

[CBBB]

Our fund has bought NPL's at 7 cents to the Euro (retail non-secured) and the banks were more than happy to sell them.

I presume that wasn't from a Cyprus bank?

[Robin Hood]

CBBB:

When a bank sells part of its loan portfolio at say 20c to the €, that is all it will get, it won't receive any further benefits from those loans. It is then up to the company that purchased the loans to collect whatever it can, up to the full outstanding amount.

Basically I agree with you .... to a point. The only money a bank ever receives from a ‘loan’ is the interest. I say ‘loan’ because in fact the banks do not actually loan anything! They open a line of credit to the borrower nothing more. It is like passing a cheque with no money in the account but, in the case of bank ‘loans’, they simply accept the cheque when you pay it out and write down the credit account into a negative amount. This is the amount you owe on the debt. When you repay the debt to the bank, they merely write off that amount of the ‘loan’ until the credit account says zero. Debt repaid but the bank made nothing except the interest. The bank both creates and destroys that money ........ it is a book keeping exercise.

The regulation also stipulates that any company that purchases loans must be regulated by the Cyprus Central Bank, so foreign companies can't just snap them up.

Central Bank of Cyprus exists in name only. It is in fact a branch of the ECB, like all other countries CB’s that use the Euro as their currency. It’s a bit like getting the fox to look after the chicken coup! And anyway .... who but foreign entities will by these ABS's?


Paphitis:

The banks are selling some bad debts or non conforming loans. They would not be selling their performing loans.

Actually, that is not necessarily correct. No more than ALL non-performing loans are in default. They carry out a process they call ‘Securitization’, in other words they bundle a bunch of loans into a package and sell them on.

Usually, when a bank does that, they end up losing money.

Again, not true! See my reply above to CBBB. The banks only ever make money on the interest, never on the repayment of the original sum, no more than they lose if the original sum is not repaid. Difficult to believe but it IS true ..... if you know how banks operate and how money is created.

it's not a good thing for a bank to do this, and they only usually do it because they have to in order to recoup some money instead of face the prospect of potentially losing a lot more money.

The only thing they can ever lose is the interest! The capital never existed in real terms it was only ever a book keeping entry.

The consumer, ordinarily in other countries would have lost their house. Because in Cyprus this is more difficult, you end up with a banking Collapse followed by a "Bail In" and receding GDP and high unemployment.

I agree, but in Cyprus they allowed these debts to multiply on a daily basis because they were attaching compound interest. The irony is that the accountants had these debts on the books as ‘assets’. It was only when some bright spark realised they were not being repaid that the s**t hit the fan and they suddenly became instead of assets, an ever increasing liability ......at least on the books. Therefore the banks now had liabilities way in excess of their assets. Solution was to increase assets or reduce liabilities. Guess what? The decided to reduce THE BANKS liabilities by defaulting on the loans their customers had made to them. Just like the developers decide to default on their loans and thus reduce THEIR liabilities.

But on top of this, the Cypriot banks were far too easy with lending money it would seem judging purely by the number of bad debts to the Banks.

Agreed .............. comes down to greed, greed, greed supported by incompetence and stupidity on the part of the Banks.

But all up it just goes to show, that in Cyprus there was little regulation or the banks were not following the regulations.

The banks didn't break any rules they simply operated within the ‘system’ which is to a large degree self regulated, the overall control of what was going on in Cyprus was under the watchful eye of the IMF/ECB, the Cyprus government had no say in the way the banks operated. The IMF/ECB knew absolutely what was going on as did most of the Cypriot population, in fact I would suggest that the ECB encouraged the Cyprus Banks to lend way beyond reasonable levels of debt.

All this is now changing with the Troika.

To me what the Troika is doing is to blackmail Cyprus into complying with the IMF/ECB demands by waving a €10bn carrot in front of the government on the basis of ‘Do what the IMF/ECB wants and allow the banks to recover their lost profits or we won’t lend you any more money’ ...... so that the country can get into ever deeper debt?

The biggest NPL Cyprus has is the government debt and it is growing daily? What happens when the government defaults? Same as with bank defaults, the IMF/EU/ECB will seize the countries collateral this time, not just a few thousand houses .......... think ‘oil/gas’!

This could turn into an even bigger tragedy than the 1974 invasion .............

[DT.]

Our fund has bought NPL's at 7 cents to the Euro (retail non-secured) and the banks were more than happy to sell them.

I presume that wasn't from a Cyprus bank?

nope

[Paphitis]

Usually, when a bank does that, they end up losing money.

Again, not true! See my reply above to CBBB. The banks only ever make money on the interest, never on the repayment of the original sum, no more than they lose if the original sum is not repaid. Difficult to believe but it IS true ..... if you know how banks operate and how money is created.

it's not a good thing for a bank to do this, and they only usually do it because they have to in order to recoup some money instead of face the prospect of potentially losing a lot more money.

The only thing they can ever lose is the interest! The capital never existed in real terms it was only ever a book keeping entry.

The consumer, ordinarily in other countries would have lost their house. Because in Cyprus this is more difficult, you end up with a banking Collapse followed by a "Bail In" and receding GDP and high unemployment.

I agree, but in Cyprus they allowed these debts to multiply on a daily basis because they were attaching compound interest. The irony is that the accountants had these debts on the books as ‘assets’. It was only when some bright spark realised they were not being repaid that the s**t hit the fan and they suddenly became instead of assets, an ever increasing liability ......at least on the books. Therefore the banks now had liabilities way in excess of their assets. Solution was to increase assets or reduce liabilities. Guess what? The decided to reduce THE BANKS liabilities by defaulting on the loans their customers had made to them. Just like the developers decide to default on their loans and thus reduce THEIR liabilities.

But on top of this, the Cypriot banks were far too easy with lending money it would seem judging purely by the number of bad debts to the Banks.

Agreed .............. comes down to greed, greed, greed supported by incompetence and stupidity on the part of the Banks.

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Sorry for stuffing up the quotes above.

RH,

I will just address one of your points because I believe it all comes down to this.

Banks can't just lend money which does not exist. It always exists. Whilst money does not change hands between the customer and the Bank, it most certainly does to the owner of the property that is being purchased.

The banks lend money which it itself has borrowed from somewhere. Either they lend money they borrowed from depositors. If a bank has 100 dollars in deposits, they usually go to the markets and borrow another 150 against this and what happens after that is they will spread this money in various ways in order to cover the cost of this money. Some of it is lent, whilst some ends up trading currencies, futures, derivatives, shares, bonds etc etc.

Risk averse banks usually stick to the safe havens which are in fact lending, treasury bills and bonds.

As for the greed, banks actually fuel the greed of the consumer. They actually provide a service to investors and business and they charge for this service and at the same time they too have a balance sheet of assets vs liabilities and also have their overhead. They trade a commodity which has its own cost in the form of interest + inflation.