The pace at which non-performing loans in Cyprus drop is too slow as delinquent borrowers are reluctant to take advantage of the provisions of recently enacted legislation, prompting the European Commission to request more action, the Cyprus News Agency reported on Wednesday.
“The foreclosure and insolvency legislation contain disincentives and obstacles,” the Cyprus News Agency reported, citing an unnamed European Union official.
The official added that the EU Commission asked the Cypriot government to prepare a report in the near future identifying the specific obstacles “and then we will discuss how they will be lifted,” according to the Cyprus News Agency.
Non-performing loans in the Cypriot banking system make up roughly half of the bank’s loan portfolio and amount to around €27bn, which is one and a half times Cyprus’s annual economic output. The Fiscal Council, a body tasked with monitoring the drafting and execution of the government budget to prevent fiscal derailment, said on Wednesday that non-performing loans remain one of the main risks for Cyprus’s public finances.
The EU Commission issued on Wednesday five recommendations to Cyprus, which include the adoption of “a binding mechanism” that will help contain the growth rate of public workers’ pay, the removal of barriers to investment, enhancing the capacity of employment services in order to address unemployment and do more to address long-term unemployment.
The Commission also recommended that Cyprus eliminate by June 2017 impediments to the implementation of the recent legislation on insolvency and foreclosures and ensure that the Insolvency Service gets adequate resources.
Cyprus was asked to “ensure reliable and swift systems for the issuance of title deeds and the transfer of immovable property rights,” the Commission said in a statement on its website, adding that Cypriot authorities also need to “increase the efficiency and capacity of the court system” and “reform the civil procedure law”.
In addition, Cyprus was asked to take measures by the end of this year “to ensure a decline in non-performing loans and accurate valuations of collateral for provisioning purposes” and also “increase the range of information available for creditors to make the credit registry fully operational”.
The Cyprus News Agency reported that Cyprus’s high private debt level is also linked to the non-performing loans. “Improving the legislation on non-performing loans will help Cyprus reduce the level of private debt,” the official was quoted as saying.