Visiting Chair of the Supervisory Board of the European Central Bank Andrea Enria began talks in Nicosia yesterday amidst parliament’s intention to amend the island’s existing law on foreclosures, basically slowing down the process.
And the European official has sent the message that non-performing loans must reach levels close to Europe’s average, according to insiders. In the Eurozone, the average at the end of the year’s first quarter was 3.8%, while the NPL ratio in the Cypriot banking sector remains the second highest.
Against this negative background, the European official has also stressed that if there are any amendments to the insolvency and foreclosure frameworks these must not undermine their effectiveness. Because this would significantly complicate, and even impede, the ongoing NPL resolution efforts, insiders also said.
Another message sent out is that it is essential to ensure that any amendments do not further weaken payment discipline by strengthening incentives for strategic defaults.
The EU’s Single Supervisory Mechanism considers the island’s existing foreclosure framework, as amended in the summer of 2018, as helpful towards the reduction of NPLs. That’s why Enria underlined that amendments that put obstacles to the process should be avoided.
The Central Bank of Cyprus but also commercial banks do not want repetition of the bleak case of the collapsed Cyprus Co-operative Bank where supervisory authorities had zeroed from balance sheets primary residence collateral. The outcome was that the Co-op bank urgently needed a capital increase.
Insiders said that when meeting either with CBC officials or political party leaders in Nicosia, Enria’s message was that the focus should be on measures that strengthen the process towards the reduction of red loans. And that no action that could lead to turbulence to the banking system should be taken, especially now that macroeconomic prospects are positive.