FINANCE Minister Harris Georgiades on Monday appeared to not be on the same page with President Nicos Anastasiades, who a day earlier hinted that banks might have to take a hit from the non-performing loans they hold by giving borrowers discounts and loan write-downs.
Speaking on Sunday, Anastasiades said: “The banks must at long last display determination…so that with the new law on the sale of bank loans they are prepared to accept reductions or discounts on loans.”
“We need to see how it is possible, through loan restructuring – real restructuring – the banks can give borrowers some breathing space so they can meet their obligations which have arisen out of the financial crisis,” the president had added.
Anastasiades revealed plans to meet with the heads of commercial lenders sometime this week to discuss this very issue. The meeting – yet to be fixed – would also be attended by Central Bank governor Chrystalla Georghadji.
Last week parliament passed a law governing the sale of loans by banks to third parties, such as hedge funds or distress funds.
The law affords debtors the right to bid to buy back their loan at a discount, after it has been deemed non-performing by the lender, but before it can be sold to third parties like investment funds.
A debtor’s bid, however, will not be binding on the bank.
Commercial banks welcomed the legislation, which they said gives them a useful tool to recoup part, if not all, of the bad loans on their books.
But the president’s subsequent remarks seemed to throw a spanner in the works.
Speaking to the state broadcaster on Monday morning, the finance minister did not appear to be on board with debt write-downs.
“I think what the president meant is that he will ask the banks to accelerate their loan restructuring and to make use of these new tools, in order to achieve viable restructuring of loans,” said Georgiades.
“Our goal is the fast restructuring of loans, with the banks demonstrating flexibility, but on the other hand borrowers must realise that their obligations cannot be written off just like that.”
The minister disagreed with the idea that the ongoing financial squeeze is the primary reason people are unable to service their debts.
“Yes, the crisis is a strain, but the chief reason why they can’t meet their debt obligations is that they borrowed more than they could repay in the first place,” he noted.
According to Georgiades, the new loan sale law would not ‘substantially’ affect borrowers.
“Neither borrowers’ rights nor their obligations are changed. They will keep paying their instalments. Rather, this is something that will affect the banks’ balance sheets.”
The minister also brushed off concerns, voiced by opposition politicians, that foreign-owned ‘predatory’ funds might gain ownership of Cypriot assets once the loan collateral is transferred to them.
“What’s the difference if loans are sold to foreign funds? Aren’t the banks here owned by foreign shareholders?” he said.
Non-performing loans in Cyprus currently amount to some €27bn. The island’s nominal GDP – not adjusted for inflation – in 2014 came to €17.4bn.