Filenews 10 June 2023 - by Eleftheria Paizaonou
The banks are not even discussing any change to the legal framework for foreclosures, although the Ministry of Finance has already consented to two bills, one by DISY and DIKO and one by AKEL.
On the occasion of the reopening of the big chapter of foreclosures the day after tomorrow Monday in the parliamentary Committee on Finance, the Association of Banks sent letters to Parliament, sounding the alarm about the risk of disruption to financial stability.
Four bills will be put before the committee, two of which have been rejected by the ministry while the other two have been accepted, as they incorporated changes promoted by the ministry.
A bigger problem seems to be identified by banks in the proposed law giving debtors and other interested parties the right to apply to a competent court to suspend procedures for the sale of real estate, in specific cases involving contesting the amount of the amount due, as well as invoking the existence of unfair terms in loan or mortgage contracts. The bill is signed by AKEL, ELAM, EDEK, DPA, Ecologists as well as three of the nine DIKO MPs (Koulias, Mylonas, Orfanidis).
As the association argues, the referral to the already burdened Cypriot courts, with the long trial time of the cases, will cause great and permanent involvement in the banks, the judicial system and the economy. At the same time, it warns that it will have an impact on the country's ratings, financial stability and Cyprus' prospects at a time of great challenges.
At the same time, they argue that, if this proposal is approved, Cypriot banks will be in a worse position than other European banks, as while they are obliged to implement directives and regulations, they will not be able to effectively use the divestment tool.
At the same time, they refer to an increase in the risk profile of the Cypriot banking system, uncertainty regarding the stability of the Cypriot legal framework, a downgrade of the Cypriot economy, a reduction in collateral, an increase in borrowing costs and strategic defaulters, as well as a decrease in the value of loan portfolios.
And the Treasury has disagreed with the legislative effort, which it said would weaken the foreclosure process.
The banks are also negative in relation to the obligation to send standardized information to borrowers (DISY-DIKO law proposal), to the determination of the value of mortgaged property in the context of the exchange of property against debt repayment (AKEL's proposal for a law) and to the proposal for a law of EDEK concerning the value of mortgaged property when it is put under sale.
Settings
Regarding the proposal of DISY and DIKO, the banks do not disagree with the provision of information to borrowers, but note that the information included in the proposal is included in the information provided to the borrower after the conclusion of the loan. They believe that sending standardized information will bring practical and legal problems, as data is not centralized in banks' systems and cannot be directly generated.
In fact, they stress that a sufficient transition period should be allowed for banks to adapt their systems.
In relation to AKEL's proposal, which provides that the value of the property will be determined as the market value by the valuation process, the banks express their concern that the restrictions may negatively affect the degree of use of the property-for-debt exchange tool.
It should be noted that the Ministry of Finance is in favour of the two bills, provided that the existing legislative framework on foreclosures is maintained and complemented by two government initiatives, concerning the Rent for Instalment Scheme and the Special Court.
They will reduce loans, they warn
The banks also disagree with EDEK's proposal, which calls for the value of the property to be considered the one that the creditor had accepted at the time of the initial agreement to conclude the credit facility. They argue that the value of immovable property changes either up or down depending on market and demand conditions, stressing that the value of immovable property cannot remain static and unchanged.
Finally, there is a risk that banks will be forced to adopt a more conservative approach in the process of granting credit facilities, which will have a negative impact on economic activity.
