FINANCE: Cyprus banks concerned over law on foreclosure freeze

Cypriot banks are reportedly concerned over parliament approving legislation designed to bail out borrowers who have defaulted on their mortgage, until September when the state-funded Estia scheme is to be activated.

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The legislation effectively issued a temporary postponement of foreclosure procedures relating to primary residences that could be eligible for inclusion in the Estia scheme for distressed homeowners with a toxic mortgage.

Cyprus banks feel that parliament’s decision to suspend divestments and to make changes to the relevant law will affect the value of the assets they hold as collateral, thus seriously burdening their balance sheet. International supervisory bodies for increased provisions and new capital needs may arise.

Banks also fear that amendments voted in will have a negative effect on their efforts to package and sell off NPLs, while endangering future upgrades by international rating agencies.

Bank sources quoted by Cyprus media have sounded the alarm that Bank of Cyprus and Hellenic Bank may also face downgrades.

Following a recent meeting with CEO’s of 8 banking institutions in Nicosia, Andrea Enria, Chair of the ECB Supervisory Board, said that changes put forward by the parliament may undermine banks’ efforts to cut their NPE, while encouraging strategic defaulters.

According to Central Bank data NPLs affected by the latest amendments amount to EUR 6.2 bln.

Finance Minister Harris Georgiades has asked President Nicos Anastasiades to veto the bills, suggesting it had been a populist move by parliament, warning that the move may endanger the recovery course of the Cyprus economy.

“Today’s decisions by parliament may temporarily satisfy a section of public opinion but they undermine the public interest,” the minister said on Twitter last Friday.

The Cyprus Employers and Industrialists Federation (OEB) have also called on the President to veto the amendments.

Government spokesperson Prodromos Prodromou said the President will go over the foreclosure amendments with the state’s legal services.