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12 | FINANCE


NEWS Cypriot economy battered By Geoff Hadwick


THE Cypriot economy took another hit last month when Moody’s Investors’ Service announced that it was downgrading the Bank of Cyprus, the Marfi n Popular Bank and the Hellenic Bank following its announcement last week that it had also downgraded Cyprus government bond ratings by two notches to A2 from Aa3. The move was partially blamed on the


island’s ongoing real estate problems. According to Moody’s, “an important


consideration that has led to today’s rating action is the increased, and high in absolute terms, level of problem loans (defi ned by Moody’s as all loans past their due date by more than 90 days) that are not covered by provisions.” “Furthermore, while net problem


loans (problem loans net of provisions) are fully covered by tangible (mostly real estate) collateral, the recent downturn in the real estate market has


Thumbs down | for Cypriot economy from credit ratings organisations Moody’s


had a negative impact on the liquidity of the market, leading to concerns over the recoverability of such collateral.” For instance, the negative rating for


Marfi n Popular Bank”primarily refl ects the downside risks embedded in MPB’s operating environment over the next year,” says the review. This could lead to “an erosion of asset quality beyond what is currently


assumed under our base case scenario.” Overall, however, a big part of the island’s economic troubles has been linked to increased bad debts due to the fi nancial crisis. The total bad debts of the banks rose to €241.42 million in the fourth quarter of 2010 compared with €169.67 million in the third quarter and €170.36 million in the fourth quarter of 2009.


www.opp.org.uk | APRIL 2011


Debt not over yet


EUROPE’s real estate debt market is set to worsen throughout 2011, according to a report from global agency CB Richard Ellis. A rise in benchmark interest rates from the European Central Bank, in combination with cautious lenders exiting the sector and stricter regulations will stifle lending activity. CBRE’s head of UK and EMEA debt advisory Natale Giostra said: “Coupled with the challenge of a huge refinancing wall of over 500 billion euros in Europe over the next three years, it is unlikely that new lending activity can truly re-start as in the near term, attention will be focused on delivering solutions to legacy problems. “With interest rates also expected to increase, we expect to see European lenders become even more selective in 2011, with terms becoming more restrictive, which in turn will place further upward pressure on margins.”


Get more commission Bank blow China fear


AGENTS could net referral commissions as investors who delayed purchasing properties during the recession move in to benefit from discounted property prices, according to research from Lloyds TSB International. OPP caught up with Barry Luhmann,


the bank’s head of lending at the A Place in the Sun Live exhibition at Earl’s Court in London last month. He said: “Key markets that were


over-heated in 2007, like parts of Spain and the US, are now buyer’s markets with many heavily discounted deals available. Many people preferred to wait and see how the markets and fi nances would be affected by the recession, but after this recent lull in activity we expect interest in overseas property to return, and possibly quite strongly as the economy improves.” He added: “All of our market research


points to the fact that many people in Britain still aspire to buying an overseas property, but a lack of confi dence in their own personal fi nances and the stability


of the property market generally is holding them back for the time being.” Luhmann told OPP: “We expect to


see an upkick in volumes as economies recover and fi nances stabilise and grow. Up to 1% of the value of the mortgage is payable in commission as an introducers fee” (0.5% in most countries). He added: “We don’t deal with developers directly, we don’t see that as our game, but if the developer then deals with an agent ... we’ll deal with them.” The bank offers fi nancing in the UK,


France, Spain, UAE, New Zealand, Hong Kong, Singapore, and selected locations in the USA, Canada and Australia, and offers up to 70% LTV, although that ratio is lower for Spain and the US. Asked if the banks should be doing


more to help kickstart the property market, Luhmann said: “Well, arguably yes. There are fewer customers that can buy for cash.” “The property world has always been


built on borrowing, but it’s very diffi cult to lend on a property of £60k for example. We have to cut it accordingly.”


A subsidiary of Bank of America allegedly hid information on foreclosures, according to a former employee who provided supposedly incriminating e-mails, which were released by online group Anonymous last month. The e-mail’s are from Balboa


Insurance, which was acquired by Bank of America in 2008 and deals in ‘force-placed insurance’ coverage on mortgages. The e-mails date from November


2010, and concern the removal of information linking loan documents to other documentation. It is alleged that this was done to


prevent information on foreclosures from being found. However, a Bank of America spokesman told Reuters that the documents were not related to foreclosures, and that a former employee had stolen them. The spokesman said: “We are confident that his extravagant assertions are untrue.”


CHINA has a 60% chance of a banking crisis by mid-2013, according to the senior director of ratings agency Fitch Ratings. In comments made to Bloomberg,


Richard Fox said there was a risk of “holes in bank balance sheets” if the rapidly swelling property bubble should burst. The fi nancial system in China has


been classifi ed as MP13 since last June, which historically suggests a crisis will occur within three years, as was the case in both Ireland and Iceland. Record price rises in China have


been supported by the banks, which extended 17.5 trillion yuan ($2.7 trillion) of loans over 2009 and 2010 under the stimulus programme which helped the country through the financial crisis. Government efforts to try and


control the rise in house prices by increasing restrictions on ownership have largely failed, leading to fears that the property bubble in the country could soon burst very badly.


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