Filenews 24 October 2022
The Association of Cyprus Banks (STK) is against the extension of the suspension of foreclosures, promoted by a Proposal for a Law, since, as it states, the continuous interventions in the existing legal framework governing the schedules and procedures for the liquidation of mortgage collateral have a negative impact on Credit Institutions (PDs) and the stability of the domestic financial system, with all that this entails.
As noted in a note with the positions of the Association of Banks, which will also be presented during today's meeting of the Finance Committee, regarding the new suspension of the divestment procedures under discussion, "the suspension of the divestment procedures, which has been in place since March 2020 until today, initially on the occasion of the pandemic and then the war in Ukraine, It makes the mortgage foreclosure process inefficient, makes it difficult to recover debts, favours strategic defaulters, creates a culture of non-repayment of loans and liabilities, and increases the risk of spreading this culture to consistent borrowers, with all that this entails."
The concerns of the CP, as well as the main implications for the financial system in the event that the suspension of foreclosures is further extended, as summarised in the relevant note:
- The cases that are currently in the process of being divested are not related to either the pandemic or the effects of the war in Ukraine. On the contrary, these are old cases of distressed loans, some of which reach a period of more than a decade and some of them are also subject to court decisions.
It is also noted that the majority of the loans that were placed under a moratorium on instalment payments during the first year of the pandemic have returned to a repayment path without substantial problems (in more than 90% of cases).
- The continuous amendment of the legislation and the suspension of foreclosures does not solve any problem but simply postpones it and postpones any resolution to a later stage. This has a significant impact on the economy and the financial sector.
The priority is the sustainable restructuring of NPLs if there is an intention to cooperate and, above all, a possibility of repayment. The latter is of paramount importance since if there is no possibility of repayment, any restructuring achieved will prove to be unsustainable in the long run.
The biggest problem faced by both borrowers and banks in the process of restructuring distressed loans is the very high private debt of households and businesses. This makes it more difficult to achieve sustainable restructuring to the benefit of both sides. Therefore, the amendment of the legislative framework and the continuous suspensions of foreclosures do not solve the problem but instead have a significant negative impact both on the economy (credit downgrade, increase in borrowing costs, limited growth prospects) and banks (increase in credit risk, higher capital requirements) and on the borrowers themselves (accumulation of debt, inability to access new lending).
- The sale of real estate is not an end in itself, but the ultimate measure for managing distressed loans. At the same time, it acts as a deterrent and discourages defaults by strategic defaulters and stems the possibility of creating new defaulters.
- The Association, in each respective discussion concerning amendments to the foreclosure framework, highlights its risks and concerns in relation to the possible impact, both on the financial system and on the economy.
- Banks have demonstrated their social sensitivity towards vulnerable, financially borrowers, especially for loans secured by the main residence that fall within the perimeter of the value of 350,000.
