Filenews 6 May 2022
At the end of June, the Cypriot authorities will submit a formal request to the DIRECTORATE-General for Competition of the EU for the implementation of the mortgage-to-rent plan, a tool that aspires to provide solutions to non-performing loans (inside and outside banks) with the provision of a primary residence or the main business premises of small businesses, the contractual balance of which, based on preliminary calculations, amounts to €3 billion.
At the end of June, the Cypriot authorities will submit a formal request to the DIRECTORATE-General for Competition of the EU for the implementation of the mortgage-to-rent plan, a tool that aspires to provide solutions to non-performing loans (inside and outside banks) with the provision of a primary residence or the main business premises of small businesses, the contractual balance of which, based on preliminary calculations, amounts to €3 billion.
As the CNA is informed, the consultations between the Ministry of Finance and DG Competition are in full swing, so that with the formal submission of the request the approval process will be accelerated.
Under the plan, the state-owned asset management company (KEDIPES) should first evolve into a National Asset Management Authority by expanding its relevant responsibilities. It will then acquire the collateral of these loans, the ownership of the properties will be transferred to it and then it will offer a repayment program to the borrowers, so that they can keep the use of their home or business premises by paying rent. Banks and credit acquirers, if they sell the collateral, will write off the amount that exceeds the value of the property.
According to information, the rent payment program will be up to 15 years, while after five years, the tenant will be able to submit a proposal for the acquisition of the property, the ownership of which will pass to KEDIPES.
The project will involve NPLs with a primary residence and main business premises for small businesses with a value of up to €350,000. Although the balance of these loans is estimated at around €3 billion, the values of the collateral are valued at around €2 billion. with almost 50% of these loans and collaterals being in KEDIPES.
As authoritative sources said, discussions on the acquisition value of the collateral ranges between 65% and 75% of the market value of the property.
At the same time, the implementation of the plan will require amendments to the legal framework, such as the law on renting, which as it stands makes it very difficult to evict a tenant who does not pay his rent, as well as a regulation for non-payment of transfer fees during the acquisition of real estate by KEDIPES on the model of restructuring plans implemented by commercial banks.
Although an official of the Ministry of Finance had stated to the Finance Committee that there is no intention to apply income criteria, the imposition of income and property criteria as a condition for approval of the Scheme is being considered after a relevant intervention by DG Competition. It is expected that these criteria will be similar to those set out in the ESTIA Plan. The same official had also stated that the Government is oriented to pay the rent of the most vulnerable borrowers.
As far as the amount of the rent is concerned, the planning so far provides for an annual rent that will amount to around 3% of the market value of the property. If, for example, a property is worth €200,000, then the annual rent will be €6,000, i.e. €500 per month.
According to the same sources, the comments from representatives of the European Union, as expressed in the recent post-memorial review, were positive.
The most "socially sensitive" group of NPLs
In its stability programme for the period 2022 – 2025, the MFN states that it is considering the introduction of another tool in the existing framework to address the remaining NPLs, which will focus on the socially more sensitive sector of NPLs, those that have as their main residence and mainly small business premises.
The proposed government policy, in particular a rent-versus-instalment plan, will be undertaken by the state-owned KEDIPES, which manages the NPLs of the former Cyprus Cooperative Bank and is the largest asset manager in Cyprus.
Based on the plan, KEDIPES will acquire in terms of purchase the main residences or small business premises secured by the NPLs and will rent them to the debtors. "So borrowers will keep the use of the property but not its property," he explains.
At the same time, it is stated that the Ministry of Finance is working on the differentiation of the existing commitments of KEDIPES on the basis of the decision of the Directorate General for Competition. It is recalled that the terms of reference of KEDIPES concern only the settlement of the NPLs of the former CCB, while it is not allowed to proceed with the acquisition of other assets.
CNA
