THE GOVERNMENT has countered the troika’s proposal for the seizure and sale of properties held against bad loans after a period of 18 months, stating that it wants to protect residential property dwellers.
In its economic adjustment programme for Cyprus, under the heading ‘Regulation and supervision for banks and cooperative credit institutions,’ the troika advised that “strong efforts should be made to maximise bank recovery rates for non-performing loans, while minimising the incentives for strategic defaults by borrowers.”
It proposed that “the administrative hurdles and legislative framework currently constraining the seizure and sale of loan collateral will be amended such that the property pledged as collateral can be seized and offered for sale within a maximum time-span of 1.5 years.”
In addition, “the procedures guiding the repossession of cash and other financial assets, which are not pledged as collateral and are held by de faulted borrowers outside the lending institution, should be appropriately accelerated; taking into account also the possibility of moving these assets within and outside the banking sector.”
But the government wants to extend the period to five years. It proposes that owner-occupied housing be exempted from any asset seizures. That would still affect assets such as inherited property, second homes, or land plots.
A major sticking point is the troika’s proposal for a redefinition of banks’ non-performing loans (NPLs), which if accepted would cause Cyprus’ bailout figure to soar. They propose that “the Central Bank of Cyprus’ guidance on the classification of loans as non-performing be immediately amended to include all loans past due by more than 90 days.”
The government’s counterproposal on seizures, part of its ‘file’ on credit institutions, was leaked to the media within hours of being handed to political parties. Central Bank sources said the number of properties seized by banks over the last few years is statistically negligible.
That’s because the process ends up at the Land Registry Department, which typically informs a bank that due to its huge backlog it will take the bank a long time to gain possession.
Cyprus Property Action Group comment
UNDER the troika’s proposal, there would be an increased risk for all those people without title deeds losing their properties where developers who have non-performing loans (NPLs) lose their collateral and it goes to the banks. An estimated 130,000 title deeds are pending.
But according to Dennis O’Hare, head and founder of the Cyprus Property Action Group (CPAG), there is more to it than meets the eye.
He said: “The troika doesn’t understand the situation. They are going about it in a similar way as they dealt with collateral in Spain and Ireland. There, the developers built properties with bank mortgages which they have been unable to offload. The key difference in Cyprus is that developers have taken out mortgages on properties and sold them to other people.”
O’Hare said that if a developer here goes bust, it is not just banks which stake a claim on the property: “Other creditors come out of the woodwork, like the Inland Revenue Department, the VAT Service, and so on.”
“At the end of the day, because of all these claims, the amount of debt on title deeds grows to about three to four times the value of the asset, including the bricks and mortar. With the troika’s proposal, since all the other claims would also have to be satisfied, at the end of the day the banks would get back only a small percentage of their investment.”
CPAG cites the ratings agency Standard and Poor’s noting that the bailout package from the EU being negotiated would be in excess of €15 billion, with €6.5 billion required for the banking sector, mostly for recapitalization.
“We are afraid that the ratings agencies don’t know the half of it,” CPAG says on its website.
O’Hare has this take: “Were the government to accept the troika’s proposal, it would expose the whole rotten system. And I believe that’s why they are trying to leave out owner-occupied lodging from bank seizures.”