Up to €6.2 billion of loans by households in Cyprus could be in limbo, according to Cyprus Central Bank data released yesterday.
Apparently, these loans cannot come under the state-subsidised ‘Estia’ home scheme criteria since they include grants of over €1 million. As much as €3.2 billion of red loans are with commercial bank and another €2.9 billion with KEDIPES (former Co-op bank).
Specifically, non-performing loans not included in ‘Estia’ scheme are €7.8 billion, of which €6.2 billion were taken out by households. Out of the €3.2 billion of mortgaged loans from commercial banks, €685 million are over €1 million. As for KEDIPES loans, these amount to €2.9 billion of which a total of €537.5 million are loans of over €1 million.
The figures were sent to the House Finance Committee which continued debate proposed amendments to foreclosures laws that opposition parties have tabled. These changes aim to slow down the foreclosure processes by banks.
In a letter, the Central Bank clearly objected to the proposed amendments, stressing that this would lead to a prolongation of the island’s auction process with an unpredictable completion time. This would set off risks to the island’s financial stability, such as:
-A negative impact on banks’ capital adequacy due to increased provisions
-Increased bank borrowing costs that will end up burdening customers
-A possible downgrading of the State’s credit worthiness
-A possible increase in capital needs in stress tests to be carried out by the ECB in 2020
-Creation of additional capital needs
-Failure to meet state commitments to the European Commission which were conditional for the approval of state support for the Cyprus Co-op bank
-Minimising the ability of KEDIPES to collect part of the €7 billion owed so as to repay the €3.5 billion of taxpayer’s money
The Finance Ministry as well as all banks have also expressed disagreement with the proposed changes, and assured that no foreclosure of a first residence by borrowers who meet the criteria of ‘Estia’ scheme will be carried out.
Debate on this burning issue will continue on Monday.
By Eleftheria Paizanou