12° Nicosia,
19 May, 2024

Divestments trigger a risk of backlash in the Recovery Fund

The proposal to go to the Court of Justice to ascertain the final amount negates agreed reforms

Panayiotis Rougalas

Panayiotis Rougalas

As Cyprus races against time to secure €1.1 billion in grants and loans from the Recovery Fund (NextGenerationEU) by June 2026, a new challenge arises. A recent legislative proposal, unveiled on Thursday, introduces a significant change for borrowers with non-performing loans. It grants them the option to seek judicial intervention to determine the exact amount owed to the bank or credit acquisition company. If this proposal becomes law, the foreclosure process would be halted until the courts can accurately assess the outstanding debt, introducing potential delays and complications.

The country is poised for a new wave of uncertainty with the introduction of this proposal, which seems to dilute the divestment framework instead of enhancing its efficiency. If Cyprus approves this proposal, it will effectively nullify an agreement it had previously reached with the Commission, resulting in the loss of EUR 85 million in funding. Notably, the initial tranche of 85 million euros that Cyprus received after the summer of 2022 was contingent upon passing bills aimed at strengthening the framework for managing non-performing loans (NPLs). These bills were key milestones agreed upon between Cyprus and the European Commission. The Credit Facilities Purchase and Related Matters (Amendment) Law of 2021 and the Real Property (Possession, Registration and Valuation) (Amendment) (No.3) Law of 2021, which garnered significant attention last year, were the titles of these two bills. The first bill sought to regulate and supervise non-performing loan servicers under the Central Bank's oversight, while the second bill aimed to grant non-performing loan servicers and credit acquisition companies access to the land registry.

N. Christodoulides: 'We do not play with the economy'

President of the Republic, Nicos Christodoulides, was questioned on Sunday regarding the proposal to seek recourse to the Court of Justice to determine the final amount, following the memorial service of the heroic Michalis Olympios in Lympia. In response, President Christodoulides emphasized the need for long-term solutions to address divestment, rather than relying on sporadic initiatives that may exacerbate the situation. He underscored the importance of maintaining strict fiscal discipline and stated that this issue must be resolved definitively, avoiding temporary measures that could further complicate matters. President Christodoulides concluded by highlighting the gravity of the situation, emphasizing the necessity of implementing lasting solutions.

The explanatory memorandum

The proposed legislation aims to amend the Transfer and Mortgage of Immovable Property Act in order to safeguard the rights of mortgage debtors and other relevant individuals. It grants them the ability to seek recourse from a competent court to halt proceedings for the sale of immovable property under specific circumstances. These include challenging the amount owed and citing the presence of unfair clauses in loan or mortgage agreements.

It is important to note that the proposed regulations will be applicable irrespective of whether any notifications were previously issued to the mortgagor or other involved parties as per the provisions of the existing law governing the sale of mortgaged properties by the mortgagee (Part VIA) prior to the enactment of the proposed legislation.

Supporters of the proposal

The proposal has been endorsed by Aristos Damianou, Andreas Kaukalias, Christos Christofides representing the parliamentary group AKEL-Left-New Forces; Sotiris Ioannou representing the National Popular Front; Elias Mirianthous representing the National Socialist Party; Alekos Tryfonides representing the Democratic Party-Cooperation of Democratic Forces; Stavros Papadouris representing the Ecologists' Movement - Citizens' Co-operation; Zacharias Koulias, Member of Parliament for the Famagusta constituency; Christos Orphanides, Member of Parliament for the Larnaca constituency; Pavlos Mylonas, Member of Parliament for the Limassol constituency; Kostis Efstathiou, an independent socialist Member of Parliament; and Andreas Themistocleous, an independent Member of Parliament.

[This article was first published in Kathimerini's printed Sunday edition and translated from its Greek original]

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