Private debt in Cyprus continues to be among the highest in the EU, in no small part due to the limited use of the insolvency and foreclosure frameworks, the European Commission has said.
Reporting on Cyprus in its 2018 European Semester review, the Commission said the debt held by non-financial corporations and households decreased to around 250 per cent of GDP in 2017 Q3, “primarily driven by households’ debt reduction. Despite the robust recovery, repayment of debt has only marginally improved as contract enforcement remains weak and the use of the insolvency and foreclosure frameworks is limited.”
The report, dated March 7, highlighted the major weaknesses of the foreclosures system in Cyprus.
“Use of the foreclosure framework remains marginal. Some key deficiencies of the foreclosure legislation have been identified, such as a high reserve price for the first auction (currently 80 per cent of the book value), the difficulty of serving foreclosure notices and a lack of clarity regarding guarantors’ obligations.
“The foreclosure law does not ensure that the framework applies to cases affected by a court ruling based on the previous legislation,” the Commission noted.
It stressed that use of the new corporate and personal insolvency process was limited.
“Rules of court for corporate insolvency have not been updated, which hampers the effectiveness of the insolvency framework. Banks do not make full use of the new tools, which offer sustainable restructuring solutions to clients with insufficient repayment capacity.
“Insolvent borrowers and other stakeholders appear not to be fully aware of the possibilities offered by the insolvency and pre-insolvency mechanisms. Banks’ participation in insolvency proceedings in the framework of loan restructuring remains limited.”
The country reports also review member states’ progress with the implementation of the country-specific recommendations over the years, by taking a multi-annual perspective.
In April the governments will have to present their own national reform programmes and the European Commission in May will issue the relevant recommendations after inspecting them.