The Minister of Finance is calling on the President to veto the proposal passed by the House plenary session yesterday that suspends home foreclosures of vulnerable borrowers for three months until February 2023. In a written statement, Constantinos Petrides described the decision as disappointing and unacceptable.
The statement below
The outcome of yesterday's Plenary session of the House of Representatives to continue the suspension of foreclosure sales for the third time in a row is extremely disappointing and unacceptable, especially in light of the following facts:
1. The unprecedented efforts by stakeholders, including banks and the Association of Credit Purchase Companies and Credit Facilities Managers (CFC), to refrain from selling first homes worth up to €350,000 to borrowers who truly belong to vulnerable groups of the population.
2. In its current form, the regulation effectively implies a blanket moratorium on non-targeted disposals. Surprisingly, it suspends commercial real estate divestitures regardless of loan amount or value. It makes no sense that it applies to businesses with a turnover of up to €750 000, and that it covers more than 85% of Cypriot businesses.
3. Since the ceiling is set at €100,000, the majority of agricultural land is also excluded. Regardless of income and loan size once more. If the first home's protection can be viewed as a social measure, then agricultural land cannot.
4. Divestments are suspended without regard to income or other factors, primarily rewarding late payers and shifting the burden of their debts onto the law-abiding citizens at a time when the economy is showing an increase in deposits, both for households and businesses, which indicates the capacity to repay debts.
5. The existence of government programs like ESTIA. etc, as well as the suspension of divestments for those of these programs that are unsustainable, pending the introduction of the "rent in lieu of installment" program.
6. The Government's and the Central Bank's disagreement and warnings about the consequences of passing this proposed legislation.
The suspension of divestments for such a broad perimeter, even with the aforementioned characteristics:
1. Erodes Cyprus's credibility and causes significant discomfort both domestically and among investors, rating agencies, and the European Union, at a critical economic juncture when the positive path for further upgrading the Cypriot economy's credit rating is in doubt, with government bond yields rising.
2. The ongoing suspensions of divestments do not take into account depositors and prudent borrowers who are in fact marginalized and, indirectly, wronged, to the benefit of strategic defaulters.
3. The wrong message is given to society that there is no obligation to repay the loans, or that the state will come up with flawless arrangements that negate this obligation, thus victimizing conscientious and prudent borrowers, who make up 75% of borrowers, and risking an increase in the number of NPLs. The culture of non-repayment of loans, which has so cost society as a whole in the recent past and has also led to the haircut of deposits, is being reintroduced.
4. Thousands of guarantors are put at increased risk, with a possible increase in NPLs at a time of rising interest rates which will increase their overall liabilities should they be called upon to take them on.
5. Concerns are raised about the impact on the effectiveness of the Recovery and Resilience Plan milestone on improving the environment for the management of non-performing loans (NPLs) by Credit Acquisition Companies and Credit Management Companies, the achievement of which is currently being assessed by the European Commission, and on the overall efforts of all stakeholders to reduce NPLs.
6. Failure to implement an effective divestment framework will lead the banking system to pursue a policy of tighter lending to both households and businesses, both quantitatively and in terms of pricing through higher interest rates to compensate for increased risk.
Unfortunately, the passage of the Suspension of Foreclosures Proposal leaves no room for the Ministry of Finance to do anything other than recommend to the President of the Republic to exercise the powers granted to him by the Constitution to repeal the passed bill.
The Ministry of Finance stresses, once again, the paramount importance of a stable legal framework governing out-of-court auctions, along with the existence of a framework of protection (mediation, insolvency mechanisms, the ESTIA Plan, OIKIA, etc.) so as to achieve the objective of reducing the number of NPL's, and, ultimately, to improve the consistency of citizens in servicing debts.
It must be ensured that those who strategically choose not to meet their obligations are faced with an effective legal framework and not rewarded.
[This article was translated from its Greek original]