InsiderEconomyGovernment wants EBA approval to freeze loan instalments by law

Government wants EBA approval to freeze loan instalments by law

The government favours suspension by law of instalments payment – capital and interest –  till the year’s end but this is subject to an European Banking Authority approval.

What is at stake now is the Authority’s opinion, to be announced later on Wednesday, whether the moratorium on instalments will also mean that loans will be classified as non-performing, Phileleftheros reports.

A lengthy tele-conference in Nicosia on Tuesday with the participation of  the Governor of the Central Bank of Cyprus, the Ministers of Finance and of Labour, and party leaders and representatives focused on the government’s proposed new package of measures aiming to counter the economic effects  of the coronavirus outbreak.

That’s when Finance Minister Constantinos Petrides made clear he is considering legislation on the freezing of loans.

Central Bank Governor Constantinos Herodotou sent the message that suspension of installments should not affect the country’s banking system. And that the aim of the government and the Central Bank is to help the real economy.

Insiders told Phileleftheros that if the EBA does not consider loans that will be frozen as non-performing, then the road towards instalment suspension for nine months will open.

In fact, if the freezing of a loan is not in parallel with being classified as non-performing means that banks will not be affected since they will not be burdened with additional red loans. The government plan provides for instalment suspension for all loans.

The freezing of instalments is something that all political parties want, Phileleftheros reports. Already pending before the House is a bill tabled by centre Diko MPs  Zacharias Koulias and Pavlos Mylonas, along with Solidarity movement’s Michalis Giorgallas providing for the suspension of instalment for six months.

In the meantime, the Finance Ministry is working overtime to have the bills ready by Thursday so to send them first to  Cabinet for approval and then to parliament.

If the government receives on Wednesday a positive response from the EBA then the plan for a moratorium on instalments will be immediately implemented, insiders said.

If not, the government will not submit before parliament the bill providing for €2 billion of bank guarantees since it would be inappropriate to provide these guarantees without the borrowers also being helped.

At the same time, AstroBank on Tuesday announced suspension of Home Mortgage instalments irrespective of government plans. This applies to private clients with mortgages recording no instalment payment delays on 29/02/2020.

Regarding the bill on government guarantees to banks for business loans, participants at Tuesday’s meeting agreed that these should be at a very attractive rate. The interest rate cannot be zero because this would be considered as a state guarantee.

In fact, the bill will also include safeguards, so that these loans do go towards salaries of employees and cover the needs of Cyprus suppliers. Borrowers will have to provide evidence to both the Central Bank and commercial lenders that the money borrowed goes towards that end.

In addition to the two major bills, the proposed new legislative package to be tabled before parliament will also include the freezing of the bill on express tenant evictions because of non-payment of rents.

In addition, suspension of payments made by citizens participating  in relevant schemes settling overdue tax debt and Social Security Fund debt will also be suspended.

As for the VAT reduction bill, this will be withdrawn and replaced by a government proposal that needs approval before the House allowing for the gradual payment of  VAT by all businesses by November 2020.

Retail businesses such as supermarkets and pharmacies will be exempted since the coronavirus outbreak had no negative consequences on them. Another bill to be tabled before the House plenum, likely to convene on Friday, is the one stipulating no increase in contributions to GESY for the months of April and May.

Read more:

New measures being drafted to counter coronavirus economic impact


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