By Angelos Anastasiou
THE HOUSE finance committee has asked the Legal Service for its opinion on the constitutionality of clauses found in the government’s loan-sales bill, with some members arguing that it should be brought to the plenum for voting together with the bill on loan bundling, it emerged on Monday.
During Monday’s session of the House finance committee, lawmakers discussed a government bill that would allow banks to sell outstanding collateralised loans to third-party investment funds.
According to the bill, loans up to €1 million may be sold only to organisations registered in Cyprus, but the restriction does not apply to loans bigger than this threshold.
Communist AKEL opposes the bill in its entirety, while DIKO and EDEK insisted on introducing an amendment that would allow the borrower to engage in the sale process and bid for the loan.
This was strongly challenged by the banks’ association, the representative of which cited moral hazard in that borrowers knowing they will get a chance to negotiate a selling price for their loan at a later point in time may decide to stop repaying it.
“This would result in non-performing loans increasing,” she said, which would defeat the purpose of the bill.
She added that, if banks are called on to raise more funds as a result, the cost will be borne by investors.
Further, she noted that, since the loans will be sold via a bidding process, convoluted procedures are likely to bring loan prices down and discourage potential investors.
Committee chairman and DIKO leader Nicolas Papadopoulos said his party’s goal is to improve the banks’ balance sheets.
He announced that DIKO will table amendments ensuring that jurisdiction for the loans sold will belong to Cypriot courts, and that Turkish-owned investment funds will be ineligible to buy loans.
He argued that the sluggish pace of restructurings of non-performing loans is owed to the banks’ unwillingness to compromise with borrowers, and said DIKO will insist on borrowers’ right to bid for their loan as an incentive for banks to negotiate a middle ground with distressed borrowers.
The Greens’ deputy Yiorgos Perdikis said that the first thing that needs to be cleared up is whether the bill contains unconstitutional clauses, as “the bill’s constitutionality was once more contested”.
He added that the finance committee must insist on the loan-bundling – or loan packaging – bill and the one on loan-sales being discussed in conjunction with each other.
Perdikis suggested the creation of a fund by the government, tasked with buying insolvent borrowers’ loans.
By Angelos Anastasiou