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Changes to foreclosures, insolvency laws on the way, Georgiades says

The government is in the process of preparing proposals to improve the insolvency and foreclosure laws in a bid to tackle non-performing loans, Finance Minister Harris Georgiades said on Tuesday, especially those in the state-owned co-op bank, which is the process of being sold and possibly split in two parts.

Speaking at the 8th Nicosia Economic Congress, the minister said that depending on investor interest in the co-op bank the government planned to set up a loan management body to handle its non-performing loans.

The terms will be set by the European supervisors.

He said other banks too will be able to transfer their loans to the NPL administrator and those debtors who meet certain income and property criteria will be given support.

“In any event however, it must be understood that no loan will be written off,” he said. “Precisely because the administrator’s proceeds from the borrowers and not from taxpayers, will repay the debt the state has now assumed.”

The state, which nationalized the co-ops in 2013 through a €1.7bn injection, is looking to dispose of the bank, or part of its assets in a process that started last month.

It also deposited €2.5bn recently in a bid to boost confidence amid rumours that sparked a run on the lender.

As collateral, it received the co-op’s NPL’s, worth around €6.2bn, which will most likely be moved to a separate entity, off the lender’s books.

But to have a chance to recoup the money it has poured into the co-op, parliament must agree to amend the foreclosures and insolvency laws to make it easier for banks to move against borrowers who do not service their debts.

The current legislation, passed in 2015, makes it difficult for banks to recover their money, something repeatedly pointed out by the EU and the IMF.

“The government is already working towards this direction, that is, preparing proposals to improve the insolvency framework and foreclosures,” the minister said.

The co-op bank has the biggest exposure to loans with primary residences as collateral.

In 2017, co-ops extended the collateral recovery period to seven years, a move that cost €150m in provisions.

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