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23 July, 2024
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Suspense builds as foreclosure deadline nears, and creditors seek solutions

Mortgage crisis looms as credit agencies use aggressive tactics

Panayiotis Rougalas

Panayiotis Rougalas

Cyprus is nearing the end of the suspension of divestments of primary residences worth up to 350 thousand euros, but a solution remains elusive regarding open funds tied to the divestment framework. Meanwhile, credit buyback companies, feeling the pressure of time, are devising aggressive resolution strategies to ensure returns on their investments in the secondary loan market.

In the coming days, we can expect credit buyout companies to initiate real estate offers, massive loan write-offs (with borrower cooperation), and other innovative approaches. They are even considering sharing part of their profit with borrowers due to their favorable acquisition of problematic loan portfolios from Cypriot banks.

The story so far indicates significant progress. Cyprus banks have been diligently shedding non-performing loans, primarily to American investment funds, resulting in a remarkable reduction of problem loans on their balance sheets. From December 31, 2017, to June 30, 2023, a total decrease of 18.5 billion euros, or 89.7%, has been achieved, leaving problem loans limited to 2.11 billion euros out of a total of 24.4 billion euros granted.

As the credit buyback companies take action in response to the relative calm in the lending and divestment landscape, we anticipate specific property offers and negotiations between borrowers and credit buyback companies for restructuring solutions. A notable aspect of these solutions will be the establishment of fixed loan interest rates.

Moreover, credit buyback companies are preparing to operate in a special court, where a third party will determine the loan balance, facilitating the negotiation process between these companies and borrowers.

As October comes to a close, there is a growing possibility that new legislation may suspend divestments once again, impacting future lending. Lending requirements are expected to become more demanding, requiring higher upfront payments, perhaps as much as 40% to 50% for new home purchases, given the challenging recoverability of collateral.

Recent data from March 2023 reveals that problem loans have reached 22.5 billion euros, with over 93% of them being more than five years late. Credit buyouts predominantly concern terminated loans (84%), while only 16% are active.

In 2021, "Servicers" managed loans of 19.2 billion euros for 80,192 loans. Now, with nearly 3 billion euros in additional problematic loans, the loan count is expected to rise significantly. These loans are distributed with 50% to natural persons, 47% to non-financial corporations, and 3% to other categories. Collateral accounts for 52% of the portfolio, with 32% attributed to primary residences and 65% to other real estate. "Servicers" own a substantial number of properties, totaling 5,679, with a value of 978 million euros.

The government faces a pressing issue concerning three open funds related to divestments that should have been resolved by summer in collaboration with MPs. The appointment of a financial commissioner and the advancement of the dispute resolution mechanism by the Central Bank of Cyprus are critical developments in this regard.

[This article was translated from its Greek original]

Cyprus  |  banks  |  economy  |  loans

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