THE STATE should buy non-performing loans (NPLs) from banks and implement a mortgage-to-rent scheme, a senior government advisor said on Tuesday, as a way to protect primary residences and small business premises.
The matter was discussed during a meeting of the national council on the economy with President Nicos Anastasiades, which also looked into setting up a bad bank.
“What the president also agreed to is that we should not reject something before we know exactly what the consequences would be,” Christoforos Pissarides said, adding that studies were underway into the matter.
On protecting primary residences, Pissarides said they discussed a suggestion for the state to buy non-performing loans with the borrower remaining in the property and paying rent to the state, which will be the owner.
Pissarides said this solution could be used for specific sections of the population who cannot service their loans, like the unemployed.
“What we are trying to do is find a way to protect the primary residence without bringing more trouble on the banking system”, he said. “It is something difficult.”
Pissarides suggested that international lenders could contribute if the state could not afford such an endeavour.
He also suggested that non-performing loans could be bought by investment funds as long as people got to keep their homes.
“I do not see any risks provided there is assurance that the owner would not be thrown out of the house,” he said.
Pissarides warned that if banks were unable to use a house as collateral for a loan it would be a step backwards.
“We know very well that for the Cypriot economy to recover it needs healthy banks that can start lending to private individuals and businesses.”
Ruling DISY has managed to get an opposition bill protecting primary residences shelved for the time being.
NPLs – a key challenge
An International Monetary Fund report published last week argued in favour of facilitating asset seizures by banks as an effective remedy for spiralling NPLs.
The report diagnosed the issue of NPLs as a “key challenge” to the economy, reporting that they have reached 50 per cent of total loans – at €22 billion, or 135 per cent of GDP.
The IMF also called on legislators to put in place a “strong legal framework to facilitate foreclosures.”
Deputy government spokesman Victoras Papadopoulos said a sense of panic had been created that was not justified.
“No main residence foreclosure is expected to take place in the near future, no property recovery has taken place so far,” Papadopoulos said.
Papadopoulos said the government was preparing a series of bills to regulate the primary residence issue.
The bills concern the financial commissioner, rent for mortgage, and solvency of individuals and companies, an “exceptionally anachronistic” law.
Details will be announced in a few weeks, Papadopoulos said.