In defence of the ESTIA home protection scheme

The ESTIA scheme’s preparations are now in full swing in cooperation with the banks, in order to regulate some technical details and complete the preparation of the scheme. At the same time, we are pushing forward with organisational preparations.

The department responsible for managing the scheme will be the Ministry of Welfare, Labour and Social Insurance, which is currently working on the necessary preparations. The goal, that the scheme be implemented with the New Year, although ambitious, is feasible.

The Ministry of Labour has been chosen to handle the scheme because it manages similar plans. It has the infrastructure and the appropriate information systems. That is why we consider that it is the most appropriate Ministry to take over the management, which also handles the issue of the Guaranteed Minimum Income (GMI) scheme. This gives the Ministry the conditions to be able to cope with the management of this plan.

There will not be any differentiation for the beneficiaries regarding the criteria. There is a dialogue with stakeholders, but so far, no differentiation has been made. We believe that the scheme has been well prepared, and that it reflects the priorities and goals we have set.

As far as the criteria are concerned, the first criterion is that the beneficiary must have a non-serviced loan (a loan that was not serviced at the end of September 2017), for which he has mortgaged his primary home. The second criterion concerns the value of the primary residence, which must not exceed EUR 350,000.

The third criterion relates to the beneficiary’s income and is set at EUR 50,000 per year at the household level. There is also a more complex criterion regarding other assets. The point is that there is a limit that ensures that if someone has many other assets, which would mean in turn that they also are able to cover the loan, he or she will be not be eligible for the scheme. However, this criterion is set very high.

Our common goal is to help reduce non-performing loans. We made the scheme for a class of borrowers who have mortgaged their primary home. Practically, we are protecting the borrower’s primary residence.

Each project has goals. The purpose of this scheme is to service non-performing loans and I think we are helping to achieve this goal through the provisions we have made.

Other projects may have other goals, for example social or developmental. Each project must be judged based on its objectives and whether it achieves them. I think that in this case we are contributing towards tackling an exceedingly difficult issue, as we all know the size of non-performing loans. It is in the nature of such general plans that they may not be able to deal with every single case. It is a general plan, but we are contributing to tackling such a major problem.

I am often asked if banks are in agreement with the scheme. One of the benefits of this scheme is precisely that everyone is contributing. Banks contribute an average of around 30%. In some cases, their contribution is larger, and, in some others, it is smaller. It is larger in cases where the value of the residence is low. This also gives a social dimension to the scheme. The government, which is essentially the taxpayer, contributes in a way that is fiscally feasible, to keep annual expenditure under control. Also, the borrower, who is the main beneficiary of this scheme, will see a reduction of his loan of almost 50% on average. The percentage is of course different depending on the case, it is an average of 50%.

This is indicative of the size of the aid provided. A precondition for a borrower to be eligible to benefit from the government’s aid is that he complies with obligations arising from the loan reconstruction. We have extensive dialogue with the banks and the messages we are receiving are encouraging. In my opinion, they have every reason to want to participate in the scheme.

Brussels is informed of our moves regarding the scheme. We believe that it has been thoroughly prepared. There have been informal discussions with the (EU) Directorate-General for Competition, which is also the competent Authority for issues regarding state aid. Of course, I cannot pre-empt their final position. But what I can say, is that they are fully aware of and have not given us any negative feedback. There is complete communication of our actions and I expect that there will be positive feedback and consultation with other competent Supervisory Authorities in order to inform them of what we are seeking to do here. I think the goal is feasible and we will make every effort to succeed.

Extracts from an interview with state radio CyBC