THE TROIKA’S decision to give the government another three months for the approval of the legislation for loan securitisation reflects the good level of co-operation between the two sides. The passing of the relevant bill had been a precondition for a positive programme review but the international lenders gave the government some leeway, in the hope that the political squabbling, which was fuelled by the foreclosures bill dragged on for months, could be avoided, if there is less time pressure.
This seems more like wishful thinking given the attitude of the political parties, which is based on the belief that borrowers should be put under as little pressure as possible to settle their debts to the banks. This attitude was evident in the endless discussions about the foreclosures bill and subsequently of the insolvency framework. How could the parties, which like to pose as the defenders of the people, be expected to take a different approach to the sale of loan packages to third parties?
Parties had tried to prevent this from happening by including a provision, prohibiting the sale of bank loans to third parties. It was scrapped when they were told it was obligation under the terms of the memorandum. However, now the parties are claiming that Turkish investment funds could buy loan packages and end up with properties in Cyprus. It is a ludicrous idea, especially as the buyers would require a licence from the Central Bank (if they are banks) or the Cyprus Securities and Exchange Commission (if they are private equity funds) to buy loan packages, but it is indicative of the parties’ intention to block the bill. In the absence of any other rational arguments, they have discovered the Turkish peril.
None of the parties are remotely concerned about the reasons the loan securitisation is necessary for banks. With half their loan portfolios consisting of NPLs the banks would improve their finances significantly by selling these on. It would be another important step towards the return to normalcy by the banks and everyone apart from the opposition parties is aware of this. The outgoing CEO of the Bank of Cyprus John Hourican had backed the setting up of a bad bank to take over the NPLs and the finance minister agreed, but funding it would have been problematic.
Selling the loans, which worked very well in Spain and Ireland, is the only alternative.
Whether the government would succeed in getting the bill through parliament remains to be seen. It has bought some time but it is doubtful the Troika would be as helpful and understanding in July if the parties were still debating the bill.