NEC urges bill to be passed “or paral­yse econ­omy”

Financial Mirror (Cyprus) - - FRONT PAGE -

De­lays in tak­ing de­ci­sions and in the ap­proval of bills to up­date cur­rent leg­is­la­tion, such as the pro­posed bill on fore­clo­sures of mort­gaged as­sets of non-per­form­ing loans, is the worst prac­tice, the Na­tional Econ­omy Coun­cil said on Tues­day, stress­ing the ne­ces­sity to have the bills ap­proved.

In a po­si­tion pa­per on is­sues con­cern­ing the bills on fore­clo­sures and bank prac­tices that was pres­i­dent to Pres­i­dent Ni­cos Anas­tasi­ades, the Coun­cil said im­prove­ments can be made over the next cou­ple of months, af­ter the House of Rep­re­sen­ta­tives passes the bills.

The Coun­cil said the cur­rent pro­ce­dure for fore­clo­sures is bureau­cratic, time-con­sum­ing and pro­vided no pro­tec­tion for the pri­mary res­i­dence or vul­ner­a­ble groups of the pop­u­la­tion.

It added that the NPLs were on a level rarely en­coun­tered any­where around the world, and were not con­sis­tent with the macro­eco­nomics.

The Coun­cil pointed out that with­out the mod­erni­sa­tion of the re­pos­ses­sion pro­ce­dure, the banks would charge high in­ter­est to cover their losses, would not grant mort­gages for pri­mary homes, and would not be able to col­lect and hence not be able to lend, lead­ing to the paral­y­sis of the econ­omy and the pro­trac­tion of the re­ces­sion for many years.

Fur­ther­more, it refers to the ef­fect time has on the cap­i­tal needs for the pur­pose of stress tests and thus the re­cap­i­tal­i­sa­tion of the banks, not­ing that if the bor­row­ers did not con­trib­ute, this would lead to a new hair­cut on de­posits.

Re­gard­ing the pro­posed pack­age of leg­is­la­tion, the Coun­cil said this re­duces bu­reau­cracy and in­tro­duces a safety net where nec­es­sary.

Speak­ing af­ter the meet­ing with Pres­i­dent Anas­tasi­ades and Fi­nance Min­is­ter Har­ris Ge­or­giades, Na­tional Econ­omy Coun­cil Chair­man Christophoros Pis­sarides said that not pass­ing the bill on re­pos­ses­sions could take Cyprus back to the sit­u­a­tion in March 2013.

The bill on fore­clo­sures was ap­proved ear­lier this week by the Cabi­net and is set to be tabled be­fore the House of Rep­re­sen­ta­tives for ap­proval. It is an obli­ga­tion Cyprus has to meet, as part of its agree­ment of March 2013 with its in­ter­na­tional lenders, that have so far re­leased five dis­burse­ments from the ESM/IMF to­talling 5.77 bln eu­ros.

Pis­sarides noted that the process of re­pos­ses­sions should def­i­nitely be mod­ernised and that the pro­posed bill was sat­is­fac­tory as a first step to be fol­lowed by changes de­pend­ing on the ex­pe­ri­ence to be gained.

He pointed out that the cur­rent pro­ce­dure which takes over seven years to re­pos­sess as­sets was not sat­is­fac­tory for the banks nor for the econ­omy.

Pis­sarides ex­pressed con­cern over the con­se­quences on the econ­omy and the bank­ing sys­tem from not pass­ing the bill, and pointed out that if Cyprus re­gressed to the state in March 2013 when a de­lay to pass a fairer but wider hair­cut on all de­posits, re­sulted in a harsher de­mand by the Troika and the clo­sure of Laiki Pop­u­lar Bank.

Pis­sarides said that fur­ther de­lay could lead to a fur­ther hair­cut on de­posits and difficulties in re­cap­i­tal­is­ing the bank­ing sys­tem, not to men­tion a blow to in­vest­ments. He also noted that the bill con­tained safe­guards for pri­mary homes and small bor­row­ers.

The Coun­cil also sub­mit­ted a study on devel­op­ment and prospects, which sug­gests ways to en­cour­age en­trepreneur­ship, im­prove the in­sti­tu­tional en­vi­ron­ment with a view to in­crease pro­duc­tiv­ity and pro­jects, and ad­dress dis­tor­tions in the econ­omy.

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