ESTIA takes shape to help mort­gage de­fault­ers

Banks iden­tify 6,000 el­i­gi­ble bor­row­ers among con­cerns and crit­i­cism

Financial Mirror (Cyprus) - - CYPRUS - By Kyr­i­a­cos Kil­iaris

It is es­ti­mated that around 10,000 vul­ner­a­ble bor­rower could be part of the govern­ment-backed ESTIA scheme set up to man­age toxic mort­gage-backed NPL port­fo­lios weigh­ing down the Cyprus bank­ing sys­tem.

A Min­istry of Fi­nance source con­firmed to the Fi­nan­cial Mir­ror that the ESTIA scheme will cost a to­tal of EUR 815 mln over a 25-year pe­riod. This means an av­er­age of EUR 33 mln a year will need to be in­cluded in the state bud­get to cover the scheme.

Bank of Cyprus and Hel­lenic Bank have iden­ti­fied some 6,000 clients which fall into the group of vul­ner­a­ble bor­row­ers, while thou­sands more are to be added to the list once the former Co-op fig­ures out how many lenders meet the cri­te­ria.

Bor­row­ers who are el­i­gi­ble to par­tic­i­pate in the scheme are to see a hair­cut on their loans up of to 32%, lower in­ter­est rates and an ex­ten­sion of the re­pay­ment pe­riod in or­der to save their homes from be­ing re­pos­sessed.

As ex­pected Bank of Cyprus, the bank with the largest NPL port­fo­lio, has the lion’s share of clients el­i­gi­ble for the ESTIA scheme ex­pected to get off the ground in Jan­uary 2019.

Talk­ing to the Fi­nan­cial Mir­ror, a BoC source said that the bank has iden­ti­fied some 5,000 el­i­gi­ble clients with loans val­ued at about EUR 1 bln.

Hel­lenic Bank is said to have 900 el­i­gi­ble clients with loans to­tal­ing EUR 250 mln. Mean­while, ac­cord­ing to re­ports, the Cyprus As­set Man­age­ment Com­pany, func­tion­ing solely with the pur­pose of man­ag­ing the ex-Coop’s NPLs, is not yet in a po­si­tion to give in­for­ma­tion on the num­ber of el­i­gi­ble bor­row­ers, as they are still mak­ing the nec­es­sary cal­cu­la­tions. But it is likely to be at least sev­eral thou­sand.

The BoC source said that the bank has iden­ti­fied cus­tomers which fit the pro­file and cri­te­ria set by the govern­ment and are now ready for the next steps.

“We have done the nec­es­sary prepa­ra­tion so as when the scheme get’s the fi­nal ap­proval, ev­ery­thing will be in place. Once ap­proved and the rel­a­tive agree­ments with the govern­ment are signed we will in­form clients and call them in to rene­go­ti­ate the terms of their loans,” said the source. The loans will then be sub­si­dized by a third by the govern­ment.

ESTIA cri­te­ria

Ac­cord­ing to what has been an­nounced by the govern­ment, el­i­gi­ble bor­row­ers have to be re­sid­ing in Cyprus for the past ten years, with a loan, that has at least 20% which has not been ser­viced for a min­i­mum of 90 days on 30 Septem­ber 2017.

The loan must also be linked to the bor­rower’s first home and not ex­ceed EUR 350,000 in value, while the bor­rower’s fam­ily in­come can’t not ex­ceed EUR 50,000.

The rest of the fam­ily’s as­sets should not be worth more than a 125% of the mar­ket value of the home in ques­tion. Loans that were re­struc­tured af­ter the cut-off date can­not be in­cluded in the scheme, while the bor­rower has to re­main loyal to the terms agreed with the bank through­out the re­pay­ment pe­riod or will be au­to­mat­i­cally ex­cluded.

The scheme cov­ers one third of the bor­row­ers’ monthly in­stall­ment and is ex­pected to in­clude to­tal loan worth EUR 3.4 bln — EUR 1.2 bln be­longs to BoC, EUR 1.3 bln to the de­funct Co-op, EUR 250 mln Hel­lenic and around EUR 600 mln from other bank­ing in­sti­tu­tions.

Ac­cord­ing to fig­ures re­leased by the Fi­nance Min­istry, 13,070 NPLs to be in­cluded in the scheme are linked to houses val­ued up to EUR 350,000, with one out of three bor­row­ers own­ing a home with an av­er­age value of EUR 282,000.

The govern­ment is con­fi­dent that the ESTIA scheme will ben­e­fit all par­ties in­volved and will nul­lify a se­ri­ous threat to the coun­try’s econ­omy posed by the high num­ber of NPLs in the bank­ing sys­tem. At the same time the govern­ment hopes to pre­vent a so­cial cri­sis with hun­dreds or thou­sands of bor­row­ers los­ing their homes.

“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,” Fi­nance Min­is­ter Har­ris Ge­or­giades has said.

Al­though the govern­ment scheme means well, it has its crit­ics. The Cyprus Cham­ber of Com­merce (KEBE) and the Em­ploy­ers and In­dus­tri­al­ists Fed­er­a­tion, feel that ESTIA leaves a lot of scope for strate­gic de­fault­ers, who pur­posely have cho­sen not to pay their loans, to take ad­van­tage of the scheme.

In a let­ter sent to the Fi­nance Min­is­ter, KEBE chair­man Christodou­los An­gas­tin­i­o­tis, raises the cham­ber’s con­cerns that the scheme will see re­li­able bor­row­ers end up fi­nanc­ing strate­gic de­fault­ers.

He also ex­pressed con­cerns scheme’s in­come cri­te­ria.

“The ra­tio­nale is that in­di­vid­u­als, fam­i­lies or busi­nesses with prop­erty worth close to EUR 800,000 and an an­nual in­come of EUR 50,000 can be clas­si­fied as part of vul­ner­a­ble groups and be sup­ported by other tax­able cit­i­zens is be­ing ce­mented,” said An­gas­tin­i­o­tis.

KEBE is sug­gest­ing that the scheme should only in­clude loans linked to homes with a max­i­mum value of EUR 250,000 and a fam­ily in­come of a max­i­mum EUR 25,000.

KEBE is also wor­ries about the ef­fect the scheme is to have on public fi­nances.

“Given that the public debt is al­ready at 110% of the coun­try’s GDP, we should be very care­ful about un­der­tak­ing new spend­ing, in or­der to avoid the risk of com­ing un­der new fis­cal mea­sures by the Euro­pean Au­thor­i­ties,” said KEBE’s chair­man.

Echo­ing the same con­cerns, Michalis An­to­niou, di­rec­tor gen­eral of the Cyprus Em­ploy­ers and In­dus­tri­al­ists’ Fed­er­a­tion, told the Fi­nan­cial Mir­ror that the in­come cri­te­ria set by the scheme is too high, al­low­ing peo­ple and busi­nesses who should not nor­mally be in­cluded in a vul­ner­a­ble group, to take ad­van­tage of the govern­ment’s in­ten­tions.

“Al­though we will not or­gan­ise a cru­sade to have the scheme an­nulled, we do feel that it should be al­tered. We have made our pro­pos­als to the govern­ment and to the Euro­pean Au­thor­i­ties and we are wait­ing for feed­back”, said An­to­niou.

He ac­knowl­edged that it is only nor­mal that while try­ing to re­solve press­ing mat­ters such as the high level of NPLs, that mis­takes and flaws will be in­cluded in such schemes.

“Our com­mon goal is to re­duce the high num­ber of NPLs and debt in Cyprus,” said An­to­niou.

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The Fi­nance Min­istry of­fi­cial said: “We have run through all the sce­nar­ios and ESTIA costs are not ex­pected to in­flate public debt or de­rail the state’s fis­cal pol­icy”.

The Move­ment Against Re­pos­ses­sions, finds the scheme to be solely in favour of the banks. Talk­ing to the Fi­nan­cial Mir­ror Demetris Demetriou, the Move­ment’s Nicosia Co­or­di­na­tor, said that the banks are the only party who will be ben­e­fit­ing from Estia.

“The state will be fi­nanc­ing 1/3 of peo­ple’s monthly in­stall­ments af­ter the loans are rene­go­ti­ated be­tween bor­row­ers and the banks, which means that banks will be get­ting a sig­nif­i­cant part of the loans back, whereas pri­vate funds are buy­ing NPL’s at just 15% of their nom­i­nal value,” said Demetriou.

He said that this was the case with the pack­ag­ing of BoC NPLs-linked to prop­erty worth EUR 5.6 bln sold to the Apollo Fund for just EUR 1.4 bln.

Demetriou sug­gested that an NPL man­age­ment body set up by the state should pur­chase the loans at the dis­counted price and come to an agree­ment with bor­row­ers for re­fi­nanc­ing their loans at 50% of their nom­i­nal value.

“It would be a win-win sit­u­a­tion, with banks off-load­ing their NPL port­fo­lios to the state, bor­row­ers be­ing able to keep their homes, and the state not los­ing any money as we will be look­ing at a re­fi­nanc­ing scheme, which will see the state earn­ing back their money with in­ter­est.”

Ge­or­giades, while an­nounc­ing dur­ing the week that the cost of the project has been in­cluded in the 2019 state bud­get, said that the scheme is now be­fore the Euro­pean Com­mis­sion for fi­nal ap­proval.

“The pa­ram­e­ters of the scheme as ap­proved by the Coun­cil of Min­is­ters and for­mu­lated in co­op­er­a­tion with other po­lit­i­cal forces, have been filed with the com­pe­tent sec­tion of the Euro­pean Com­mis­sion which is ex­pected to ap­prove them,” said the min­is­ter.

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