THE TROIKA of international lenders and political parties on Thursday failed to reach a consensus on the thorny issue of guarantors to bad loans, which forms part of the fifth and last bill of a package of proposed laws known as the insolvency framework.
According to the Cyprus News Agency (CNA), the troika people proposed loan restructuring where the secured loan amount will burden the principal debtor, the rest being the responsibility of the guarantors.
Court orders mandating a loan restructure would apply for the secured amount of the debt only, with the guarantors obliged to settle the remaining amount.
By way of example, if the total loan comes to €100,000 but the value of the security amounts to €80,000, the bank would essentially issue a new loan for €80,000, with the remaining €20,000 considered unsecured and to be paid by the guarantors.
Banks would also be entitled to chase guarantors for other unsecured debt of principal debtors, such as credit cards and overdrafts.
The same arrangement would hold for bankruptcies – the bank would receive the secured amount, and then go after guarantors for the rest.
The troika argued that a bank cannot be entitled to less than it would be if properties used as collateral were to be foreclosed on and sold.
Party officials disagreed, arguing that the loan amount comprises not only the principal and the regular interest rate, but also often includes overcharges.
They insisted that banks ought to share some of the cost.
The politicians further said that the vast majority of borrowers are in dire financial straits, an assertion rejected by the troika.
During the meeting, which lasted two-and-a-half hours, the team of international creditors complained about the lack of data on debt guarantors, CNA reports.
Further discussion of the bill between the troika and finance ministry officials is expected to take place today Friday. This week alone, Finance Minister Harris Georgiades has held three meetings with the international lenders, who are here reviewing progress in Cyprus’ €10 billion bailout programme.
According to data cited by CNA, so far some 10,000 individuals have filed for bankruptcy, while around 2,000 companies are currently under liquidation proceedings that are pending because an insolvency practitioner has yet to be appointed. Thousands more companies are expected to file for bankruptcy in the near future.
Meanwhile, news outlet Sigmalive on Thursday released an email apparently belonging to Bank of Cyprus CEO John Hourican.
The revealing missive – an internal bank email – calls out Cypriot politicians, suggesting that some at least are playing a double game on the controversial issue of foreclosures.
Opposition MPs recently suspended – for a second time – implementation of foreclosures legislation to March 2.
The email attributed to Hourican reads: “To the extent that some politicians are, indeed, pretending to be protecting the more vulnerable in society against the ‘bad banks’ when really they are protecting the larger businesses in Cyprus, this is a scandal.”
Hourican goes on to describe the bank’s policy in dealing with mortgaged properties:
“You are also right that the prospect of mass foreclosures of small homes and apartments makes no financial sense to us. We need to start pointing this out so that it starts to be better understood.
“But do remember that we have a clear ‘no quarters’ policy on the big spenders who will have to start recognising that they took big obligations and they need to honour them.”
It would appear that protecting those who use the communal urinary vessel is the primary objective of those who seek to delay implementing the foreclosure laws.
No doubt there would be no such interest in these delaying tactics if the only ones affected were the ATM’s?
I seem to remember when we took out our Housing loan (we actually thought back then it was a mortgage, a bit naive like a lot of us I’m afraid) the guarantor was either the Bank or the Developer. (I can’t be sure now it’s been a few years .. LOL)
That may explain why they are reluctant to go after the guarantors as how can they either go after themselves or a developer that will not or cannot pay the loans or mortgages he already has ?
It starts to make sense now, they are all in it together a mass pot of deceit and lies covering for one another all the time in any way they can think of……
You couldn’t make it up …….
Perhaps we should be asking ourselves why Cypriot politicians are acting in a way that is blatantly out of step with the rest of the world?
Could it be that politicians have been guarantors to several rafts of loans which they knew would be defaulted on and they now fear they might have to honour an agreement? And yes, I know honour is a concept unknown in these parts but I can think of no other reason for the continued procrastination.
@Pete on 2015/02/08 at 9:25 am – I suspect the fact that developers act as guarantors for buyers needing loans to buy a property may have something to do with it.
Currently if a buyer defaults on their loan repayment and the bank pursues them through the court, both the buyer and developer are named as defendants. But a successful action (currently) does not involve the developer having to pay the remaining amount.
There is also a major problem that liquidators do not pursue the guarantors of loans granted to failed companies.
As I said elsewhere, the guarantor may just as well have a stuffed teddy bear.
Why bother to engage guarantors in the first place if, at the end of the day, nobody is going to pursue them? Obviously it is not worth pursuing a guarantor who has no means of paying but this should have been established at the outset. It seems that a distinct lack of due diligence pervades the entire banking system in Cyprus but how to extricate itself from the mess it has created is an enigma yet to be solved.
The house of cards is teetering. The more these idiot politicians say the more they show how totally out of touch with reality they are.
A guarantor….. The clue is in the word!!! But hey I guess someone perhaps needs to buy these clowns a dictionary.
It would be funny if it wasn’t so tragic.
Carol Words are meaningless in Cyprus and issues relating to NPL are coming to light. Statements are made and Banks troika and government officials views and replies are going in opposite directions to each other. I cannot envisage a decision made soon and at the same time our mortgage loans are increasing without address.
Sometimes I feel like walking away from my Cyprus mortgage and letting the bank sell my property and the guarantor i.e developer paying outstanding monies owned?
Our Developer has gone into liquidation and the liquidator has declared that he will not go after the guarantors because [1] it is not his job and [2] it would be to expensive. If he won’t who is going to, or does he and the bank think we are going to pay!!!
“You are also right that the prospect of mass foreclosures of small homes and apartments makes no financial sense to us. We need to start pointing this out so that it starts to be better understood”
Lovely Mr. Hourican! Will you promise not to take homes that buyers have already bought. Homes where the developer has already been paid in full and homes where buyers continue to repay their mortgage.
You know, the homes bought in good faith. The homes with undisclosed DEVELOPER mortgages.
Hourican, if Hourican it is, is quite right.
Agreeing to be a guarantor is a binding contractual obligation; or at least it would be in any other country.
What reason do the government give for so blatantly ignoring guarantors in favour of pursuing innocent home buyers?
@Pete on 2015/02/06 at 9:20 am – IMHO the political parties involved have no concept of justice.