MPs ap­prove fore­clo­sures bill to help lower NPLs

Financial Mirror (Cyprus) - - FRONT PAGE -

The House of Rep­re­sen­ta­tives on Satur­day ap­proved by a wide ma­jor­ity a long-over­due bill that de­ter­mines in­sol­ven­cies and reg­u­lates fore­clo­sures, a re­quire­ment that had been de­manded by the Troika of in­ter­na­tional lenders as part of a EUR 10 bln bailout plan in­tro­duced in 2013.

A to­tal of 33 MPs from the rul­ing Demo­cratic Rally (DISY), the cen­tre-right Demo­cratic Party (DIKO) and the so­cial­ist EDEK par­ties voted in favour of the frame­work that in­cludes five pieces of leg­is­la­tion that aims to ease ef­forts by banks to re­cover as­sets and fore­close on un­paid mort­gages.

The rate of non-per­form­ing loans (NPLs) has dan­ger­ously ex­ceeded the 55% mark of the na­tional bank­ing sys­tem’s loan-book, a wor­ry­ing fact that forced the Troika to de­mand a re­form of the fore­clo­sures frame­work if it was to grant the bank­rupt is­land the bailout money.

Since last Septem­ber, when the frame­work was first in­tro­duced, op­po­si­tion par­ties had blocked the leg­is­la­tion say­ing not enough was done to en­sure un­em­ployed and low­in­come house­holds did not lose the roof over their heads.

Other amend­ments that were grad­u­ally in­tro­duced in­cluded safe­guard­ing a home-owner if most or all of the mort­gage had been re­paid, but the con­trac­tor or de­vel­oper had re-mort­gaged the prop­erty to fund other projects. Also, the is­sue of loan guar­an­tors seems to have been clar­i­fied, with third par­ties not obliged to pay the bal­ance of a loan that the bor­rower had failed to set­tle.

The com­mu­nist party AKEL, whose five year hap­haz­ard ad­min­is­tra­tion drove the is­land’s econ­omy to the brink of de­fault, had been de­lay­ing all votes on the fore­clo­sures and in­sol­ven­cies reg­u­la­tions, and op­posed all of the gov­ern­ment-in­tro­duced leg­is­la­tion, claim­ing that the bills favoured banks alone.

Fi­nance Min­is­ter Haris Ge­orghi­ades has long ar­gued that pas­sage of the frame­work would ac­tu­ally en­sure vul­ner­a­ble house­holds re­tained their pri­mary homes or at least gained time to re­struc­ture loans and mort­gages, while it also al­lows banks to fi­nally chase large debtors who have the fi­nan­cial abil­ity to re­pay loans but refuse to do so.

Bankers, too, have ar­gued in favour of the frame­work say­ing they do not want to re­pos­sess peo­ple’s homes, es­pe­cially at a time of a prop­erty mar­ket glut, and that the new leg­is­la­tion would al­low them to re­cover as­sets, dras­ti­cally re­duce their rate of NPLs and re­turn to prof­itabil­ity at the ear­li­est.

Re­leas­ing funds from the banks’ bal­ance sheets, would also al­low them to re­sume lend­ing to small and medi­um­sized en­ter­prises (SMEs) that are so des­per­ate for cash in or­der to re­sume op­er­a­tions and kick start the is­land’s econ­omy.

Speak­ing af­ter the vote from Wash­ing­ton, where he was at­tend­ing the 2015 Spring Meet­ings of the World Bank and the In­ter­na­tional Mon­e­tary Fund, Ge­orghi­ades said that this is a very im­por­tant devel­op­ment that will have both di­rect and in­di­rect ben­e­fit to the Cypriot econ­omy.

The di­rect ben­e­fit has to do with an im­proved legal frame­work which will en­cour­age sus­tain­able re­struc­tur­ing of non-per­form­ing loans, of­fer­ing pro­tec­tion and fa­cil­i­ties to pay the loan in­stal­ments where there should be and com­pli­ance mea­sures where nec­es­sary.

He de­scribed the in­di­rect benefits as equally im­por­tant, which he said were re­lated to the prospect of Cyprus’ par­tic­i­pa­tion in the Euro­pean Cen­tral Bank (ECB) quan­ti­ta­tive eas­ing pro­gramme and restora­tion of Cyprus’ fund­ing both from the in­sti­tu­tions and mostly the mar­kets.

Re­gard­ing the timetable con­cern­ing the draft­ing of a bill by the gov­ern­ment, within a month, on prop­erty mort­gaged by de­vel­op­ers, he said that a rea­son­able and re­li­able ad­just­ment must be made to a com­plex is­sue.

The sus­pen­sion of the fore­clo­sures frame­work had also frozen the re­view of the is­land’s eco­nomic ad­just­ment pro­gramme at the time when the Euro­pean Com­mis­sion and the Euro­pean Cen­tral Bank had ap­proved fund­ing to Cyprus, but the IMF halted a tranche of EUR 85 mln, un­til Cyprus com­plied with the bailout pro­gramme and public sec­tor re­form process.

With the pro­gramme and re­view now ex­pected to get back on track, the Cyprus gov­ern­ment hopes that it will also be able to tap into the ECB’s quan­ti­ta­tive eas­ing pro­gramme that was launched last month, with as much as EUR 500 mln of Cypriot bonds to be ab­sorbed, of­fer­ing liq­uid­ity to the is­land.

Averof Neo­phy­tou, Pres­i­dent of the rul­ing DISY party, told MPs dur­ing Satur­day’s ple­nary ses­sion that the ap­proval of the frame­work would al­low Cyprus to tap into in­ter­na­tional mar­kets with favourable in­ter­est rates, as the Cyprus sovereign is still con­sid­ered as non-in­vest­ment grade by the rat­ing agen­cies Moody’s, Fitch and Stan­dard & Poor’s.

Ge­orghi­ades has said that he hopes the gov­ern­ment would re­turn to mar­kets at least twice in 2015 to is­sue bonds at favourable rates and roll over its in­ter­na­tional debt, cur­rently at­tract­ing bond yields of just un­der 4%.

Mean­while, tech­ni­cal groups from the Troika of in­ter­na­tional lenders are ex­pected back in Cyprus on April 2629 with a view to com­plet­ing the fifth re­view of the coun­try’s eco­nomic ad­just­ment pro­gramme.

Upon their ar­rival, the tech­ni­cal groups will ex­am­ine the com­pat­i­bil­ity of the in­sol­vency frame­work ap­proved on Satur­day by the House.

The Eu­rogroup will meet on April 24 in Riga, Latvia, to be briefed on de­vel­op­ments and then a date will be set for visit by the Troika’s mission chiefs.

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