The Ministry notes that the economy of Cyprus, despite the upgrade, still faces imbalances
One of the biggest challenges of the economy, according to today's announcement by the Ministry of Finance, is the high stock of Non-Performing Loans and their management. The announcement emphasizes that a “functional and effective foreclosure framework is key to encouraging borrowers to restructure their loans”.
The Ministry notes that “the Cyprus economy, despite the upgrade, is still facing imbalances according to the findings of the evaluation carried out by the European Commission”, adding that the Commission “finds that among the vulnerabilities of the Cypriot economy is the high private debt including Non-Performing Loans”.
The announcement also clarifies that the majority of the loans were granted during the 2006-2010 credit expansion, have become non-performing or have been terminated almost two decades ago, and are not related to the recent crises that have plagued the Cypriot economy.
The Ministry states, next, that in order to assist vulnerable households that own a NED with a mortgage on their first home, three government Plans have already been drawn up (Home, Home, Plans of the Central Agency for Equitable Burden Distribution) with the participation of approximately 50-60% of the beneficiaries only, and clarifies that these schemes targeted middle-income borrowers.
“The fact that there was not the desired and expected response from all the borrowers to benefit from the government schemes, indicates the lack of interest and desire cooperation from borrowers,” the announcement adds.
Although divestments were frozen for most of the period from March 2020 to January 2023, the Ministry of Finance has been consistently promoting measures to address the problem.
One of the measures mentioned by the Ministry is the Rent Against Payment Plan, stating that it is “a fair and definitive solution for vulnerable population groups (little or no income) for protection from expropriation” and adds that “the European Commission is in final stretch of the demanding procedure for approval of the measure and its implementation will be immediate”.
Also, it mentions as a measure the re-regulation with the aim of subjecting to a special jurisdiction within the framework of the District Courts the cases that concern disputes for credit facilities secured by a principal residence worth up to €350,000, noting that the legally tested bill will be submitted within days to the House of Representatives.
In addition, it reports that there has been consensus on two proposals for legislation by Parliamentary Parties, which promote transparency in the foreclosure process and balance the position of borrower versus creditor when exchanging property for debt when the property is a primary residence and a business home. “The Ministry of Finance is positively disposed to their immediate promotion and voting under the condition of maintaining the existing legislative framework”, he notes.
Next, it states that “other proposals for variations in the framework of divestments by suspending the divestment process, either universally or on a case-by-case basis, through an appeal to a court, indeed even if the dispute has already been adjudicated, deal with the NED problem in a one-dimensional way, they will not improve the financial behavior and mentality of citizens, and will contribute to the deterioration of our country's competitiveness indicators”.
“The possibility of universal access to a court, as a final point of disposal, reverses the advantages and the whole purpose of the out-of-court disposal process introduced in 2018 and restores the long-standing inefficient pre-2018 framework which was among the most time-consuming in Europe,” it says the Ministry of Finance.
He adds that “the introduction of legislative obstacles that weaken the smooth development of the divestment process have as a result the degeneration of the value of the collateral leading to an increase in the capital needs of the banks and a weakening of the financial stability, making the whole economy more vulnerable to shocks”.
“A functional and effective foreclosure framework is key to encouraging borrowers to restructure their loans, dealing with strategic defaulters, further reducing NPLs in the economy, the smooth operation of the credit system through the granting of credit (loans) for investments/acquisition of housing and the consolidation of a mentality of compliance with their loan obligations”, he concludes.
