453 mln from Troika hangs in the bal­ance MPs drag their feet with fore­clo­sures bill, as DIKO may have change of heart

Financial Mirror (Cyprus) - - FRONT PAGE -

A de­lay in pass­ing the con­tro­ver­sial fore­clo­sures bill in par­lia­ment could de­lay or even can­cel pay­ment by the Troika of in­ter­na­tional lenders next month of the sixth tranche of the is­land’s bailout money, es­ti­mated at EUR 453 mln.

Fi­nance Min­is­ter Har­ris Ge­orghi­ades warned MPs on Tues­day that de­lay­ing the mat­ter fur­ther in order to re­vise the leg­is­la­tion, which the Troika clearly said it doesn’t want al­tered, would cre­ate dif­fi­cul­ties for pub­lic fi­nances, hav­ing ear­lier stated that Cyprus has enough funds only un­til Novem­ber.

The Troika (IMF, EC and ECB) wants the bill ap­proved be­fore the next Eurogroup meet­ing in mid Septem­ber, in order to dis­burse the next bailout tranche, but par­lia­men­tary par­ties, ex­cept the rul­ing Demo­cratic Rally (DISY), have said that the fore­clo­sures leg­is­la­tion could not pass as it is, ask­ing the govern­ment to rene­go­ti­ate with the lenders.

Ge­orghi­ades told a sec­ond ses­sion of the joint par­lia­men­tary com­mit­tees for Fi­nance and In­ter­nal Af­fairs, that had been ad­journed from Mon­day, that if the next tranche is not dis­bursed in time, “we will face dif­fi­cul­ties and con­se­quences be­yond our con­trol and plan­ning”.

Fi­nance Com­mit­tee Chair­man and ex-coali­tion DIKO leader Ni­co­las Pa­padopou­los then called for the meet­ing to con­tinue be­hind closed doors, where the Fi­nance Min­is­ter also elab­o­rated on com­ments that a se­nior Rus­sian in­vestor at the Bank of Cyprus wanted the fore­clo­sures bill to go ahead as ini­tially planned. This raised con­cerns that pas­sage of the bill would pave the way for a mas­sive ex­pro­pri­a­tion ex­er­cise that would see low-in­come fam­i­lies who can’t re­pay their loans, lose their homes.

How­ever, it seems that ma­jor funds and in­vestors are keen to grab on the cheap the port­fo­lios of ma­jor de­vel­op­ers who have been re­fus­ing to re­pay their loans, even though they could af­ford to, and not in­di­vid­ual small prop­er­ties. Some of the tar­geted com­pa­nies are mem­bers of the newly formed as­so­ci­a­tion of de­vel­op­ers of ma­jor projects.

Pa­padopou­los re­port­edly then asked Ge­orghi­ades how an ex­pro­pri­a­tion would ac­tu­ally take place if the owner re­fuses to leave the mort­gaged house. “Would they bring in goons?” he asked.

How­ever, the DIKO leader was later re­port­edly in in­ten­sive ne­go­ti­a­tions with DISY leader Averoff Neo­phy­tou to see if there was any ground to re­think the whole bill in time for the next Eurogroup meet­ing.

Pa­padopou­los was pre­pared to back down from his adamant re­jec­tion of the bill, as long as there were pro­vi­sions that would safe­guard home own­ers’ rights, such as the re­lated in­sol­vency bill and the need to re­struc­ture trou­bled loans.

Mean­while, Cen­tral Bank Gov­er­nor Chrys­talla Ge­orghad­ji­said that if the bill on the fore­clo­sures on mort­gaged prop­er­ties is not ap­proved, the value of these non­per­form­ing loans held by sys­temic banks would not be con­sid­ered dur­ing the EU-wide stress tests in Oc­to­ber.

She said that once the stress tests are con­cluded, the Cen­tral Bank will fo­cus on re­struc­tur­ing and in­ter­est rates.

Ge­orghadji ex­plained to the House that be­fore the def­i­ni­tion of non-per­form­ing loans was changed a year ago, there were no NPLs be­cause they had suf­fi­cient col­lat­eral.

She also said that loans to­taled 52.5 bln eu­ros, ex­plain­ing that 10 bln have prop­er­ties as col­lat­eral, of which 4 bln are not served.

The Gov­er­nor said the non-per­form­ing re­struc­tured in the first quar­ter of 2014 stood cor­re­spond­ing to 1.2 bln eu­ros.

Dur­ing Mon­day’s joint ses­sion of the House Fi­nance and In­ter­nal Af­fairs com­mit­tees, In­te­rior Min­is­ter Socratis Hasikos pre­sented the Troika’s neg­a­tive re­ply to the ac­counts at 6,789, amend­ments pro­posed by the par­lia­men­tary par­ties.

The Fi­nance Min­is­ter had said that fore­clo­sures should pro­ceed not only for vil­las, but also for apart­ments for which the debtor has not paid a sin­gle in­stal­ment.

“Fore­clo­sures should not pro­ceed only for vil­las. They should pro­ceed also for an apart­ment for which the bor­rower has not paid a sin­gle bank in­stal­ment since it was bought”, the Min­is­ter noted, adding that “tol­er­ance is un­fair” to the de­pos­i­tors, but also to those bor­row­ers that pay their dues.

Ge­or­giades said that “the key to ad­dress­ing the ac­cu­mu­lated debt is the re­struc­tur­ing of loans”, adding that the Cabi­net has ap­proved an out­line of amend­ments to ex­ist­ing laws, that is the in­sol­vency frame­work, re­fer­ring to the re­struc­tur­ing of loans, aimed at giv­ing a sec­ond chance to bor­row­ers that are strug­gling to pay their debts.

In any case, this frame­work must con­tain the tools needed for the banks to re­cover loans from debtors that do not co­op­er­ate or debtors with un­sus­tain­able loans, he noted.

Hasikos said that the fore­clo­sures leg­is­la­tion is not aimed at mas­sive fore­clo­sures on mort­gaged prop­er­ties, but at cor­rect­ing the cur­rent law. The bill aims at ex­ert­ing pres­sure on both the debtor and the bank to ne­go­ti­ate and find ways to re­struc­ture a loan, he noted.

Hasikos said that the Govern­ment has drafted a scheme un­der which the state, through the Cyprus Land Devel­op­ment Cor­po­ra­tion, will help those who can­not pay and have ex­hausted all avail­able op­tions, to keep their pri­mary res­i­dence, ei­ther by buy­ing their home or by pay­ing the in­ter­est on their loan, which the debtor later would have to pay back to the state.

At­tor­ney Gen­eral Costas Clerides noted that un­der the leg­is­la­tion the debtor has the right to par­tic­i­pate in the fore­clo­sure process by ap­point­ing an ap­praiser.

Cen­tral Bank chief Ge­orghadji added that NPLs re­mained the big­gest prob­lem of the four banks that will un­dergo the stress tests car­ried out by the Euro­pean Bank­ing Au­thor­ity.

Ge­orghadji said that there are bor­row­ers who can­not pay their bank in­stal­ments and oth­ers who “naively be­lieve that they pun­ish the banks by not pay­ing”.

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