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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 €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 low-income 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 medium-sized enterprises (SMEs) that are so desperate for cash in order to resume operations and kick start the island’s economy.
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 €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 €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%.
