Speculation is heightening over a rumoured merger between Hellenic Bank and the government-owned Cooperative Bank. According to informed sources, the idea is being kicked around but nothing has been confirmed.
The Cooperative Bank has been the target of scandal after scandal, with its bottom line suffering from the financial crash in 2013, mismanagement, corruption, embezzlement and nepotism. With €6.4 billion in non-performing loans on its books, any merger would likely involve its division into good and bad banks, with the bad bank being managed by a debt collection or distressed asset management company. While some operations have been updated, like consolidating all the separate branches into one bank, others have not. Communications with customers are not efficient. According to customers we talked to, debt restructures are often to the complete disadvantage of borrowers already struggling through losses after the economic crisis – which is not so far in the past. Court rulings against the bank are frequent.
Hellenic Bank has improved and modernised its management policies and of all the local banks, was the least affected by the Greek Government Debt crisis. Nonetheless, it may still be too soon for Hellenic to expand, even into a government-owned entity backed by taxpayer’s money. The risks are not so much financial as corporate culture; in Cyprus the private and public sectors are often pitted against each other to the detriment of both. One can only imagine the drag on Hellenic Bank’s efficiency if it has to deal with the Cooperative Bank given its recent track record of being taken over by the state, and the heavy burden on its reputation after it was caught cheating its customers out of millions of Euros by overcharging on interest rates.
The fact is that despite the headline GDP growth, the economy as a whole is still recovering. The non-performing loans are not going to go away without proper governance and a down-to-earth approach. The banks passing around the buck and assets isn’t going to work in a shallow market that is experiencing cash flow problems. What’s needed is a redoubled effort to encourage investment and jobs, and innovative thinking. What’s just as important as financial capital is human capital. Once the economy is really back to work, then the non-performing loans will melt away because there will be buyers as well as sellers, demand for the supply of assets glutting the market. The very large debtors like property development companies are one of the keys to settling them, since they make up a large percentage of the debts.
In addition to making deals with debt collection and asset management companies, the banks should think creatively, laterally, inviting opinions from their customers, from marketers, from think tanks, from academics in the field of economics or the art of change and successful adaptation. They might be surprised at the wealth of ideas out there.
A call for comment to both banks was not immediately returned.
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