Investment funds are not interested in the housing loan market, Thomas Kingston, partner in Cyprus Capital Partners, a fund investing in private equity fund, has told CNA. The fund is in the process of raising € 100 million to invest in Cypriot SMEs with activities and profitability abroad.
Kingston estimates that loan managers will not be interested to buy loan packages to turn the NPLs into long-term revenue streams, but will focus on acquiring assets through loans market with which they are connected.
Kingston explained to CNA the process followed by fund managers in connection with the purchase of loans and non-performing loans (NPLs), concerning mainly companies. At the same time he expressed the view that investment funds will not be interested in household loans, primarily for ethical reasons.
“One is ethics, fund managers cannot even think about a family loosing their home, you don`t want to be in that business, a few fund managers want to be in that business. That` s probably a problem the banks have to solve”, he said.
Under certain conditions, he said, investment funds could enter the household loan market, depending on the discount of the bank (from the nominal value) and the size of the bank, and if there is enough room in the loan to give the borrower enough freedom to begin paying back.
Kingston noted that there should be a distinction between the purchase and sale of houses and the funds entering a market and manage business loans and large loans for the property sector.
“It is important to separate these two. Fund managers are rarely interested in the mortgage loans, loans that have to do with people`s homes”, he said, adding that funds are interested in commercial loans, in real estate to a certain degree but also in companies that can produce things and contribute to the real economy.
He also expressed the view that fund managers will come to Cyprus looking for potentially lucrative assets that happen to be attached to NPLs and will use the NPLs as a way of acquiring that asset, as opposed to buying a basket of loans and turn it into a revenue stream.
As he said, the idea is to take these NPLs and turn them into assets that do generate revenue year on year. He also said that there is interest in buying the loans in order to convert that debt into equity. As an equity holder, he said, the fund will help that company turn around and become more valuable.
Speaking on the large amount of non- performing loans in the Cypriot banks, he expressed the view that setting up a bad bank is the best way to address the problem.
“The banks themselves have the opportunity to turn NPLS into performing loans and one way to do that is a bad bank, where a bank will establish a finance company they will hire specialists who know how to take a long-term view on these loans and slowly rehabilitate the loans into performing loans”, he said, adding that what the banks suffer from is time and capital.