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.”