By Elias Hazou
THE GOVERNMENT and opposition parties appeared on Thursday to be inching closer to agreement on the contentious foreclosures bill – but a series of ifs and buts still loomed pending the feedback from Cyprus’ international lenders.
Following a meeting at the presidential palace between the president, the ministers of finance and the interior, the attorney-general and the Central Bank governor, with the heads of all parties, government spokesman Nicos Christodoulides sounded upbeat on the prospects of overcoming the impasse.
“We believe we can arrive at the desired outcome. There is a desire for a positive outcome and all are working toward this end, this is a joint effort,” he said.
Calling the three-hour discussion at the palace “very good”, the spokesman indicated for the first time publically that the administration is willing to consider party additions and/or amendments to the foreclosures-related legislation. The foreclosures legislation was also discussed at the House finance committee.
Christodoulides diplomatically ducked a question as to what the government would do should the party amendments – to be submitted at Monday’s crunch session of the House plenum – end up changing the foreclosures bill too far.
“We shall have to wait and see what the parties’ specific amendments are, but we feel we can reach the required result which must also be acceptable to the troika,” Christodoulides noted.
It’s understood the troika has made it clear it does not want the foreclosures legislation to be watered down to such an extent that banks cannot move on delinquent mortgagors, particularly large debtors.
On Monday the House is expected to put to the vote the government’s core foreclosures bill, plus two to three more related bills concerning bank practices aimed at protecting borrowers, and issue a parliamentary declaration binding the House and the government to passing insolvency legislation by the end of the year.
For his part, DIKO leader Nicolas Papadopoulos said he agreed that the “philosophy” of the foreclosures bill should not be tampered with, on condition that the laws shield those debtors who have been hard-hit by the financial crisis.
“The insolvency framework provides such a safety net,” he added.
Asked whether there were hopes of breaking the deadlock, Papadopoulos said only: “We shall see on Monday.”
Likewise EDEK seemed to have somewhat softened their stance, indicating that if their proposed tweaks are incorporated they might vote for the bill.
Main opposition AKEL leader Andros Kyprianou said his party’s goal is to protect vulnerable groups and not large debtors. If that can be achieved, he added, they would vote for the bill, otherwise not.
During the powwow politicians queried the attorney-general and the Central Bank governor on a series of legal and technical issues touching on foreclosures, forced sales and banking practices.
One concern related to what happens once Cypriot banks are able to sell debt to third parties, such as hedge funds: would the hedge funds then change the terms of the loan and engage in predatory practices against borrowers.
The Central Bank governor said that third parties buying debt from banks here would be subject to Cyprus law; in any case, she added, any such sale of debt would require prior approval from the Central Bank.
Meantime an idea being floated is to pass the foreclosures law but suspend its coming into effect until January 1, 2015.
The troika has already given the nod to exempting primary residences from the law’s provisions until that date. Now, however, the parties want to go beyond that, by exempting all mortgaged properties, because they want the foreclosures law to come into effect only once insolvency legislation has been passed. But the government says it cannot bring a bankruptcy law before the end of the year.
The proposal for suspending all of the bill’s provisions has not been put in writing yet – this may happen at the House on Monday.
Whereas the ploy may help break the political gridlock here, enabling passage of the bill, things get trickier when it comes to the troika.
And despite the progress made on Thursday, there was a sense that political operators are playing it by ear and hoping for the best.
There’s a reason why the troika has agreed to exempt primary homes until January, said banking sources, speaking on condition of anonymity.
“And it’s got little to do with social sensibilities. The troika has calculated the value of non-performing loans tied to primary residences. Because the figure is relatively low – perhaps €1.5bn of NPLs on properties under €250,000 – leaving them alone for now does not appreciably impact banks’ overall NPL portfolio, which totals €28bn.”
“But if the House decides to pass the law but at the same time postpone its coming into effect for all mortgaged properties – developers etc – that means four months will pass until January, plus six more months for foreclosure proceedings to be initiated after the law comes into effect, as per its provisions. That’s about a year from now, and the troika likely won’t go for that.”
Another question hangs over the upcoming EU-wide stress tests on banks. If the foreclosures law is passed now but not with immediate effect, are mortgaged properties still considered as impaired, i.e. non-performing while the stress tests are underway? If yes, Cypriot banks would have to drastically discount their assets (NPLs), wreaking havoc on their books. Passing the foreclosures law in this way would be a damp squib.
The stress tests are scheduled for mid-October.
“The ECB, which is part of the troika, has already said clearly that the same rules apply to all countries in the stress tests,” one source told the Mail.