Cabinet okays homeowner plan ahead of crucial House session

The Cabinet approved on Tuesday the “Estia” scheme aimed at addressing the high volume of non-performing loans in the Cypriot banking sector, but time is running out as a crucial legislation package on bad loans is also up for a vote on Friday.

The Cabinet also approved the Finance Minister’s proposal to set up a body that will undertake the management of non – performing loans of 7 bn euro now owned by the Cyprus Cooperative Bank (CCB).

The CCB has signed a business transfer agreement with the Hellenic Bank based on which the latter will acquire a portfolio of primarily performing loans (net loans of €4.6bn), Cyprus Government Bonds (€4.1bn), cash (€1.6bn), customer deposits (€9.7bn) and certain other current liabilities and assets.

The terms of the acquisition include an asset protection scheme that has to be approved by the Parliament, in a vote on Friday, along with five bills prepared by the Government to introduce amendments aimed at reducing non-performing loans.

The “Estia” scheme will “contribute to addressing non-performing loans, by supporting vulnerable social groups” said Government Spokesman Prodromos Prodromou after Tuesday’s Cabinet extraordinary meeting.

According to Prodromou, the scheme provides for a specific pre-determined loan restructuring process which includes a readjustment of the loan balance to the value of the mortgage, an adjustment of interest rates between 2.5% and 3.5% and several years of repayment.

Only borrowers with family income less than 50 thousand euro annually and with assets that do not exceed 125% of the value of the mortgage, will be eligible for the scheme.

The “Estia” scheme foresees that the State will subsidise a third of the monthly instalment that the borrowers will have to pay after the restructuring of their loan.

Prodromou said that the scheme will also cover business loans secured by borrower's primary residence.

According to preliminary estimations, around 15 thousand vulnerable borrowers will be eligible for the scheme. The funding will be included in the State’s budget for 2019 and is projected to around 30 mn euro.

The scheme will be managed by the Cyprus Land Development Corporation.

Furthermore, the Government Spokesman announced the Cabinet’s decision to set-up a body that will take on the management of CCB non-performing loans, amounting to 7 bn euro.

The Spokesman noted that the revenue from the management of non - performing loans will be enough to cover the operating cost both for the “Estia” scheme and the NPLs management body, but also to “absorb” the increase in the public debt resulting from the restructuring of the CCB.

In addition, the Cabinet approved the proposals put forward by the Democratic Party (DIKO) on NPLs discussed Monday during a meeting of the party leader Nicolas Papadopoulos with President Nicos Anastasiades, as the Government needs DIKO support in critical votes over a series of bills it has brought before the Parliament aimed at reducing NPLs and sealing the deal between the Hellenic Bank and the CCB.