Cyprus seeks rent scheme to tackle €3 bln NPLs

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Cyprus and the EU are expediting the process to transform the state-owned Asset Management Company (KEDIPES) into a nationwide AMG to launch a mortgage-to-rent scheme.

The scheme will cover non-performing loans collateralised by primary residences and mainly SME business premises with a value up to €350,000.

KEDIPES will launch a call for banks and credit acquiring companies to acquire these properties and then implement the mortgage-to-rent scheme when the scheme is approved.

The consultations concern changing KEDIPES’ mandate approved by the EU Directorate-General for Competition in 2018, limited only to the management of non-performing assets of the former Cyprus Cooperative Bank.

In Cyprus’ stability programme 2022-2025 submitted to Brussels, the Finance Ministry said it is examining the introduction of one more element for the resolution of remaining NPLs which will address “the socially sensitive segment of NPLs collateralised by the primary residence and SME primary business premise.”

“The proposed government policy, namely a Mortgage to Rent Scheme, will be undertaken by the state-owned KEDIPES, which currently manages the bad assets of the former Cyprus Cooperative Bank and is the largest asset manager in Cyprus,” the Ministry added.

Under the Mortgage to Rent scheme, KEDIPES will acquire on market terms primary residences or primary business premises which secure NPLs and rent these properties to debtors.

“Therefore, the debtors would maintain occupancy of the property but not its ownership. In exchange, the outstanding debt would be written off.”

According to CNA, the scheme entails a 15-year payment duration, while borrowers could submit a proposal to acquire the property after five years.

The annual rent is envisaged at around 3% of the property value.

While the contractual value of eligible loans is estimated at €3 bln, the value of the properties collateralising these loans is estimated at €2 bln, with approximately 50% held by KEDIPES.

The discussed transfer price ranges between 65% and 75% of the current value.

And the government intends to pay the rent of the most vulnerable borrowers opting for the scheme.