A large number of foreclosure notices to be sent tomorrow

Today, Tuesday, January 31, 2023, marks the end of the most recent three-month suspension of divestments imposed by a resolution of the House of Representatives. Starting the next day, February 1, a flood of foreclosure letters are expected to be sent out. Many foreclosure proceedings will begin in mid-March, 45 days after the letters are sent, a process that has not occurred since early November. As a result, starting Wednesday, we will begin to see a large number of publications for property sales in Cyprus, as required by law for press publication. After two years of foreclosure suspensions due to the pandemic on the part of the banks, and three months of consecutive suspensions at the initiative of the MPs, it is estimated that a sufficient level of foreclosure sales will be accomplished by March 2023.  If there is no extraordinary three-month suspension of foreclosures once Parliament reopens, K estimates that there will be between 100 and 200 foreclosure sales per month going forward. And these figures are justified because a sizable "stockpile" of properties linked to troubled lending has accumulated.

The entire framework of foreclosures and how to make it more equitable for the borrowers' side while also making it more advantageous for the banks and credit buyout firms are now in the hands of the new Government and Parliament. In order to determine whether or not we will be led back into a continuous suspension, the new government will have to consult with Parliament and examine both sides of the issue. First, it remains to be seen whether the much-touted "special court" will actually be established to hear only cases involving real estate, loans, banks, and credit buyout firms and to serve as a "focal point" to which every borrower can turn if he is truly entitled to it in order to get justice.  Second, they should work with the Treasury to determine when and how the mortgage-to-rent "project" will move forward in order to assist the most vulnerable borrowers, those who are unable to make any payments to keep their homes.

Old transgressions

When the decision to suspend sales for a continuous three months was made, the banks emphasized—a stance they maintain today—that the cases that were being sold had nothing to do with the pandemic or its effects. They were cases of non-performing loans from the past, some of which were older than ten years. They emphasized the fact that some of them also had court rulings.  

According to data in "K's" possession for the years 2020 and 2021, only 233 properties were sold during the 1,528 auctions that were held in total. Given the fragmentation, 128 fields and plots were put up for auction in 2020, and 30 fields and plots were put up for auction in 2021. Regarding the fields and plots with buildings, six were put up for auction in 2020 and five in 2021. In 2020, there were 46 apartments and homes up for auction, and in 2021, there were 10. Just two industrial spaces totaled in both years' auctions, as did one shop, one vacant home, and two residential spaces with shops.  On the basis of the same data from banks, it is also noted that the auctions that were held did not involve "first" or "main" residences and that their value is neither below nor close to EUR 350,000.

2,7 billion down from 28,4 billion

According to the Central Bank of Cyprus' most recent financial bulletin, which mentions non-performing loans in the banking industry, these have decreased by 90.5%, from €28.4 billion in December 2014 to €2.7 billion in October 2022, largely as a result of the actions taken by the biggest banks, from €28.4 billion to €2.7 billion. However, the NPL ratio as of October 31, 2022, was 10.5%, which is still significantly higher than the European Union average of 1.8%. As a result of the Russian invasion of Ukraine, which has had an impact on many different aspects of the financial system, the CBC warns that there is a real risk that the asset quality of banks will deteriorate. 

Preventive restructuring

In terms of the bank loan portfolio's quality, despite the pandemic-related crises that followed and Russia's invasion of Ukraine, the balance of non-performing loans (NPLs) continued to decline in 2022 at a slower rate than in recent years, primarily as a result of the sales/transfers of loan portfolios to credit acquisition companies and loan write-offs. The CBC adds that the economy continues to be burdened by high levels of private debt resulting from loans transferred to Credit Acquisition Companies. It notes that there has been an increase in the percentage of loans identified as presenting an increased credit risk since the pandemic. The ease with which companies can service their loan debts in the near future will depend on changes in households' disposable income and businesses' profit margins.  Therefore, further careful observation and prudent restructuring by banks are imperative in light of the CBC's warnings in this regard.

[This article was translated from its Greek original]