Banks inform struggling borrowers to join ESTIA home-rescue scheme

Banks have laid down the ground work for the state scheme ESTIA which is to be set-up to manage mortgage backed NPL portfolios of the Cyprus banking system.

Although the scheme has yet to be presented to parliament, Bank of Cyprus has identified some 5,000 vulnerable borrowers and has sent out letters urging them to submit a show of interest to be included in the rescue scheme.

According to an official, Hellenic Bank has identified some 900 clients in trouble who will soon be notified.

At least 10,000 people are thought to meet the criteria for homeowners who are in arrears with mortgage payments.

This move is perceived as part of efforts by the banks efforts to drastically cut down their NPL portfolios by utilising the state scheme, under the tight pressure exerted by the monetary authorities.

Banks started identifying clients who fit the scheme criteria from early September, after the Finance Ministry had called on banks to declare whether they would like to participate in ESTIA.

The ministry call seems to have encouraged some banks to speed up their internal processes.

But international monetary bodies are, at the least, sceptical towards the scheme’s viability.

At the beginning of October, the European Commission and the International Monetary Fund expressed concerns about the moral hazard of the plan, which covers almost all households rather than just those belonging to mortgage defaulters, as claimed by the government.

The IMF said the high ceiling on criteria leaves a lot of scope for strategic defaulters to take advantage of the scheme at the expense of the taxpayer.

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 at least 20% of which has not been serviced for a minimum of 90 days as of 30 September 2017.

The mortgage in question must also be linked to the borrower’s first home which should not exceed EUR 350,000 in value, while the borrower’s family income must not exceed EUR 50,000.

The rest of the family’s assets should not be worth more than the 125% of the market value of the home in question. Loans that were restructured after the cutoff 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.

ESTIA aims to cover one third of the eligible borrowers’ monthly installments.

It is expected to cover a total of EUR 3.4 bln, of which EUR 1.2 bln worth of loans belong to BoC, EUR 1.3 bln to the defunct Co-op, some EUR 250 mln Hellenic loans and around EUR 600 mln worth of loans 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 282,000.

With the implementation of the scheme, Bank of Cyprus is expected to see a reduction of EUR 1 bln in its EUR 7.9 mln NPL portfolio.

Hellenic Bank’s eligible clients are around 900 with loans of EUR 250 mln.

The future of the ESTIA scheme is to be decided during the state budget discussion at the end of the month, with EUR 30 mln earmarked to cover the installments of insolvent borrowers for 2019

It is estimated the scheme will run for 25 years – starting from January 2019 - with total state funding to reach EUR 815 mln.