Dozens of small businesses with non performing loans (NPLs) at the Bank of Cyprus are under pressure to settle their debt in order to avoid the appointment of an administrator or legal action.
According to Phileleftheros newspaper, the department of the bank handling problematic loans has started to increase pressure on businessmen due to the increase in NPLs which have reached millions of euros.
This means that many liquidity-short small firms face closure during the deep recession.
Possible bank solutions include the appointment of an administrator, legal action or both within a reasonable time period if other arrangements are not made, although some big borrowers have started to pay back interest.
Others are in search of partnerships or moving forward with asset sales in order to reduce their debt and keep BoC from the door.
Large businesses which have taken out big loans and are able to continue their activities can not be easily dismissed as the bank's evaluation would influence capital adequacy.
However, sectors that are considered problematic or over-borrowed will be forced to reach an agreement with the bank to settle their debt.
The first wave of businesses to go will include heavily indebted companies which had survived one way or another until today or small and medium sized businesses that have been severely affected by the crisis.
The total of NPLs - defined as loans more than three months in arrears or rescheduled several times - was €23 billion at the end of September, according to the latest central bank figures.
That is well in excess of Cyprus GDP that stands at only 17 billion euros, and represents 42.3% of total lending.
Banks are also taking measures to secure anything they can from businesses that have gone under, while others are negotiating to refinance their debt and reduce the cost in order to continue paying off their loans.
Banks are currently under pressure to settle overdue loans before the end of March, due to a Troika-imposed evaluation by the Central Bank which will assess the operational capacity of loan units at commercial banks to handle premature overdue loans, among others.
This also goes for the struggling co-ops after the completion of the merger process scheduled for May.
Meanwhile, commercial banks have to submit quarterly reports on the progress and administration of the restructuring of NPLs for the end of March.
Detailed information regarding special indices of performance and targets which were approved by the CB has to be discussed with the EU, the European Central Bank (ECB) and the International Monetary Fund (IMF), before updating the European Stability Mechanism (ESM).
Furthermore, the banks will submit a monthly report with information on overdue debts, such as the number and amount of loans overdue by one to 90 days and the measures that are being taken.