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PIMCO cyprus.pdf

PIMCO cyprus.pdf

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Published by Olympia Gr
pimco analysis for cyprus banks
pimco analysis for cyprus banks

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Published by: Olympia Gr on Apr 23, 2013
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04/24/2013

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PIMCO Europe Ltd
 11 Baker StreetLondon W1U 3AHEnglandTel: +44 20 3640 1000
Independent DueDiligence of the BankingSystem of Cyprus
 
March2013
 
 
BANKING SYSTEM OF CYPRUS
|
INDEPENDENT DUE DILIGENCE REPORT
1
Legal Disclaimer and Limiting Conditions
This report sets forth information contemplated by the engagement of PIMCO Europe Ltd (together withits affiliates, “PIMCO”) by the Steering Committee (as defined herein) and is prepared in the formcontemplated by the agreement between PIMCO Europe Ltd and the Central Bank of Cyprus (the“Agreement”). This report is intended to be read and used as a whole and not in parts. Separation oralteration of any section or page from the main body of this report is expressly forbidden.This report has been prepared exclusively for the Steering Committee. There are no third partybeneficiaries with respect to this report, and PIMCO expressly disclaims any liability whatsoever (whetherin contract, tort or otherwise) to any third party. PIMCO makes no representation or warranty (express orimplied) to any third party in relation to this report. A decision by the Steering Committee to release thisreport to the public shall not constitute any permission, waiver or consent from PIMCO for any third partyto rely on this report. Access to this report and its use by any third party implies acceptance by the thirdparty of the terms and conditions contained in this section and other parts of this report.This report is, in all cases, subject to the limitations and other terms and conditions set forth herein and inthe Agreement, in particular exclusions of liability.This report has been produced by using and in reliance on information furnished by third parties,including the Central Bank of Cyprus and the Participating Institutions to which this report relates. Inpreparing this report, PIMCO has used information and advice provided by third party professionaladvisers including lawyers and real estate valuers. All such information has not been independentlyvalidated, verified or confirmed by PIMCO and PIMCO makes no representation or warranty as to theaccuracy or completeness of any information provided by third parties.This document has been prepared for information purposes only and is not a solicitation of any offer tobuy or sell any security, commodity or instrument or related derivative or to participate in any tradingstrategy. PIMCO is not responsible for any decisions made in connection with the implementation or useof this report. This report does not provide any opinion regarding the fairness of any transaction. Noinvestor or security holder should rely on the content of this report in any way in connection with thepurchase or sale of any security.The report sets out and is based upon certain assumptions which have been agreed with the SteeringCommittee. No representation is made that the assumptions are reasonable or are likely to be obtained.The use of such assumptions may suggest a valuation for an asset which differs considerably from itsmarket value. PIMCO does not represent that any such assumptions will reflect actual future events orthat all assumptions have been considered or stated. Actual events are beyond PIMCO's control, difficultto predict and may differ materially from those assumed. Changes to any assumptions may have amaterial impact on analyses, projections or estimates. All information included is based on informationavailable on the date hereof and PIMCO is under no obligation to update the information herein.This document contains information which is proprietary and/or commercially sensitive to PIMCO.PIMCO Europe Ltd (Registered in England and Wales, Company No. 2604517), Registered Office 11Baker Street London W1U 3AH Tel: +44 20 3640 1000. Authorized and regulated by the FinancialServices Authority (25 The North Colonnade, Canary Wharf, London E14 5HS).
 
 
BANKING SYSTEM OF CYPRUS
|
INDEPENDENT DUE DILIGENCE REPORT
2
Table of Contents 
1
 
EXECUTIVE SUMMARY ............................................................................................................................. 6
 
1.1
 
O
VERVIEW AND
O
BJECTIVES
....................................................................................................................... 6
 
1.2
 
B
ACKGROUND AND
C
ONTEXT
..................................................................................................................... 8
 
1.2.1
 
Overview of Cyprus Banking System .............................................................................................. 8
 
1.2.2
 
Summary Findings....................................................................................................................... 10
 
1.2.3
 
Significant Findings ..................................................................................................................... 13
 
1.3
 
PIMCO
 
A
PPROACH TO
I
NDEPENDENT
D
UE
D
ILIGENCE
.................................................................................... 15
 
1.4
 
A
GGREGATE
R
ESULTS
............................................................................................................................. 16
 
1.4.1
 
Base Scenario ............................................................................................................................. 17
 
1.4.2
 
Adverse Scenario ........................................................................................................................ 19
 
2
 
LOSS ABSORPTION CAPACITY ............................................................................................................... 21
 
2.1
 
O
VERVIEW
........................................................................................................................................... 21
 
2.2
 
D
ELEVERAGING AND
N
EW
L
ENDING
............................................................................................................ 22
 
2.2.1
 
Methodology .............................................................................................................................. 22
 
2.3
 
I
NTEREST
I
NCOME
.................................................................................................................................. 24
 
2.3.1
 
Methodology .............................................................................................................................. 24
 
2.3.2
 
Results ........................................................................................................................................ 25
 
2.4
 
I
NTEREST
E
XPENSE
.................................................................................................................................. 27
 
2.4.1
 
Methodology .............................................................................................................................. 27
 
2.4.2
 
Results ........................................................................................................................................ 28
 
2.5
 
N
ON
-I
NTEREST
I
NCOME
........................................................................................................................... 36
 
2.5.1
 
Methodology .............................................................................................................................. 36
 
2.6
 
N
ON
-I
NTEREST
E
XPENSE
.......................................................................................................................... 38
 
2.6.1
 
Methodology .............................................................................................................................. 38
 
2.6.2
 
Results ........................................................................................................................................ 39
 
2.7
 
L
OAN
L
OSSES AND
P
ROVISIONS
................................................................................................................. 41
 
2.7.1
 
Methodology .............................................................................................................................. 41
 
2.7.2
 
Results ........................................................................................................................................ 43
 
2.8
 
D
EFERRED
T
AX
A
SSETS
............................................................................................................................ 44
 
2.8.1
 
Methodology .............................................................................................................................. 44
 
2.8.2
 
Results ........................................................................................................................................ 44
 
2.9
 
R
ISK
-W
EIGHTED
A
SSETS
.......................................................................................................................... 46
 
2.9.1
 
Methodology .............................................................................................................................. 46
 
2.9.2
 
Results ........................................................................................................................................ 47
 
2.10
 
S
ECURITIES
........................................................................................................................................... 49
 
2.10.1
 
Methodology .............................................................................................................................. 49
 
2.11
 
N
ON
-B
ANK
S
UBSIDIARIES
......................................................................................................................... 50
 
2.11.1
 
Methodology .............................................................................................................................. 50
 
2.11.2
 
Results ........................................................................................................................................ 50
 
2.12
 
O
THER
A
SSETS
...................................................................................................................................... 50
 
3
 
LOAN LOSS ANALYSIS ........................................................................................................................... 51
 
3.1
 
O
VERVIEW
........................................................................................................................................... 51
 
3.2
 
D
ATA
C
OLLECTION
................................................................................................................................. 51
 
3.3
 
P
AST
P
ERFORMANCE
R
EVIEW
.................................................................................................................... 55
 
3.3.1
 
Framework for Historical Data Review ......................................................................................... 55
 
3.3.2
 
Results ........................................................................................................................................ 57
 
3.4
 
L
OAN
L
EVEL
F
ORECASTING
F
RAMEWORK
..................................................................................................... 62
 
3.4.1
 
Probability of Default Model ........................................................................................................ 62
 
3.4.2
 
Loss Given Default Model ........................................................................................................... 65
 
3.4.3
 
Results ........................................................................................................................................ 69
 
3.5
 
L
ARGE
L
OAN
R
EVIEW
.............................................................................................................................. 70
 
3.5.1
 
Corporate ................................................................................................................................... 70
 
3.5.2
 
Commercial Real Estate ............................................................................................................... 76
 
3.6
 
P
ROBLEM
L
OAN
S
ERVICING
...................................................................................................................... 80
 
3.6.1
 
Credit Bureau Information .......................................................................................................... 81
 

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