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12° Nicosia,
02 December, 2022
 

Looking for a strategy to suspend foreclosure sales

Banks claim that the divestments are unrelated to small-value homes worth less than 350 thousand euros

Panayiotis Rougalas

To protect vulnerable borrowers and stop the economy from being impacted by decisions that could harm its integrity, a strategy for the new potential three-month suspension of foreclosure sales is being sought. The suspension of the mortgage sale process for mortgaged properties involving a primary residence with an estimated value of no more than EUR 350k, a commercial property with an annual turnover of no more than EUR 750k, and a parcel of land with an estimated value of no more than EUR 100k is deemed excessive because it does not reflect cases of borrowers experiencing issues due to difficulties created by the pandemic, inflation, or Russia's war in Ukraine. There are cases that date back more than 20 years as well as cases that span more than a decade.

While a climate has been created in recent days in which only the suspension of sales for mortgaged properties of primary residences with an estimated value of less than 350 thousand euros could pass, it appears that nothing is certain. Among the possible scenarios being considered is revising the law that will be voted on to exclude parcels of land, as well as possibly lowering the value of commercial housing. All of this could change at the last minute when it is presented to the House on Thursday.  The emphasis has now shifted to the 'wants' of credit purchase companies, as statements to the Finance Committee considering the bill have indicated that they are the ones putting the most pressure on borrowers. Banks claim that the divestments are unrelated to small-value homes worth less than 350 thousand euros and that there are numerous other cases of borrowers who are refusing to cooperate in order to settle appropriately.

According to previous reports presented by "K," there were a total of 1,528 auctions by banks and credit redemption companies in 2020 and 2021, with a total of 233 properties sold.

Houses, funds, and banks

When there was discussion about the economic impact of divestment decisions in the past, one important argument was the preservation of the financial system's stability, but an equally important argument was the protection of the credit rating of the Cypriot economy.  Apart from these two arguments, one of which has essentially been "dropped" because rating agencies have not only not downgraded Cyprus since 2018, but have been continuously upgrading it, the disbursement of the Recovery and Resilience Fund may now have a strong basis. Cyprus has yet to receive funds related to bills passed over the summer dealing with non-performing loans and credit buyout companies.

While Cyprus has completed the 14 milestones required to receive the first tranche of the EUR 85 million recovery fund, the competent authority is still reviewing the situation.  If the competent authority realizes that there is a major problem with a law that Cyprus passed regarding the treatment of NPLs, then either the disbursement will be delayed or we will be denied, as we are not actually implementing what we have passed.

Simultaneously, risks are being created for credit institutions because, while credit purchasing companies do not have capital issues, banks do in an uncertain economic environment.  According to the banks, the European supervisory authorities (European Central Bank, European Banking Authority, and the Single Supervisory Mechanism) have stated unequivocally that constant amendments to legislation, particularly timetables relating to collateral liquidation procedures, increase credit risk, potentially resulting in a bank failure. As the banks point out, determining capital requirements, including Pillar II and the necessary provisions for NPLs, is largely based on assumptions about collateral value. As a result of the uncertainty surrounding the stability of the Cypriot legal framework, as well as the continuous modification, extension, or suspension of the procedures and timetables for the liquidation of collateral, capital increases and additional provisions may be imposed.

Mainly fields and plots

According to previous reports presented by "K," there were a total of 1,528 auctions by banks and credit redemption companies in 2020 and 2021, with a total of 233 properties sold. According to the same figures, more than 70% involve fields and plots of land, while only 15-20% involve apartments. The remainder is for residential, commercial, and land with structures. According to the same data in "K's" possession, 128 fields and plots were sold by auction in 2020, while 30 fields and plots were sold in 2021. Fields with buildings and plots with buildings were auctioned six times in 2020, and five times in 2021.  In terms of apartments and houses, 46 were auctioned in 2020 and 10 in 2021. There were very few auctions for industrial properties, shophouses, and vacant homes. Finally, approximately 12% completed the deed.

[This article was translated from its Greek original]

TAGS
Cyprus  |  economy  |  banks  |  foreclosures

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