Cyprus parliament have voted to extend the freeze on property foreclosures to the end of October despite pleas from the government and financial institutions to allow the homes of defaulting borrowers to be repossessed.
Elizabeth McCaul, Member of the Supervisory Board of the ECB, advised caution over amendments to the foreclosures law stressing that “such policies can also backfire and destabilise the banking sector if designed in a haphazard manner.”
Ratings agency Moody’s warned on that the amendments approved by the Cyprus parliament to the legal framework governing foreclosures were “credit negative”, as it expected that they would “hamper banks’ efforts to reduce problem loans”.
The credit rating agency said that the amendments “will likely lengthen the foreclosure process”.
“The amendments are credit negative for Cypriot banks because they hamper the banks’ organic efforts to reduce large stocks of nonperforming exposures (NPEs), which were 30% of gross loans as of December 2018, and also make inorganic sales of NPEs less attractive to investors. A failure to reduce NPEs will increase provisioning needs for the banks.
“The amendments will likely make it more challenging for banks to foreclose on collateral held against defaulted borrowers. Importantly, the amendments broaden the reasons based on which a borrower may appeal the foreclosure process and challenge a property`s auction, which will likely cause long delays in the process because of inefficiencies in Cyprus’ judicial system, with long delays and a big backlog of cases”.
Homeowners with primary residence with values of €350,000 or less, businesses with a turnover under €750,000 and land with a value of €100,000 or less are protected under the freeze.
Finance Minister Constantinos Petrides said “Suspending foreclosures at this crucial period also endangers the rollout of the much-anticipated ‘Mortgage to Rent’ scheme – a scheme worth €400 million which protects the residence of vulnerable households including the non-viable debtors under the ‘Estia’ programme, since the EU’s approval of it will depend on the effectiveness of the foreclosures framework.”