PRESIDENT Anastasiades did the right thing in sending back the foreclosures’ bill approved by the opposition parties at the last session of the legislature 10 days ago. There were compelling legal and economic reasons for vetoing the amendments to the foreclosures law which, if enforced would turn the clock back to the pre-2015 period when it took between seven and 12 years for a foreclosure procedure to be completed. In their zeal to pose as the defenders of the innocent people, whose homes were allegedly at risk of being repossessed by the evil banks the opposition parties could not care less about putting the economy at huge risk.
If the NPLs had been drastically reduced and no longer posed a danger to the banking sector and the economy, this may have been a weak argument for the amendments to the foreclosure legislation, but everyone knows this is not the case. Non-performing loans (NPL) in Cyprus were still about 30 per cent of gross loans while the average for the rest of the EU is five per cent. The European Commission, the IMF, World Bank, ECB and ratings agencies have been warning us for years that the level of NPLs poses a big risk to the economy and yet our deputies have decided to pass legislation that will make their reduction much more difficult than it already is.
Moody’s rating agency issued a warning on Thursday, saying the amendment of the foreclosure legislation was credit negative for Cypriot banks because this would make it more difficult to reduce NPLs and lead to increased provisions. Apart from strengthening the position of the strategic defaulters, the amendment would also lower the price of the potential sales of NPL portfolios to investors or stop them buying these portfolios altogether, warned Moody’s. What investor would buy an NPL portfolio from a bank with a law in place that makes repossession of properties used as loan collateral a near-impossible task? And with the populist irresponsibility of the legislature a given, who could rule out the possibility of foreclosures being outlawed in the future?
Should we also mention how these indefensible amendments would affect business and economic growth? Faced with increased provisions and capital needs banks would be forced to tighten credit, and raise interest rates given to honest customers who are meeting all their payment obligations. Honest bank customers would be penalised to protect strategic defaulters. In fact, they will also be penalised, when the Estia loan discount scheme for strategic defaulters, subsidised by the taxpayer, is introduced in September. The scheme, in effect, will reward bad customers who have refused to honour their contractual obligations to the banks.
Deputies never consider the gross unfairness of their initiatives to protect loan defaulters. Worse still, is the systematic way they cultivate disregard for the law and pass bills to protect law-breakers. This is what their whole stance on foreclosures, since 2014, was about while they used the protection of the primary residence as a pretext. Their laws, to an extent, render invalid, loan contracts for properties, signed by bank customers of their own free will. In his letter to the legislature about the latest amendments, President Anastasiades points out that assets used as collateral are part of a loan contract and changing them subsequently by law is unfair to one of the parties.
Cyprus has lawmakers that do not show adequate regard for the rule of law, labouring under the illusion that it can be bent to satisfy their populist plans. They do not realise the harm they are doing to the country. Not only do they convey the message that people do not have to obey the law when it comes to honouring their contractual obligations, but they will offer them support when they do so. They also give Cyprus a bad name at a time the country is trying to attract foreign investment and is working on becoming an international business centre. Rule of law, a stable legal framework and a sound banking sector are vital factors in attracting foreign business, yet irresponsible opposition parties are methodically undermining them as part of their shameless populism.
The president may have vetoed the amendments to the foreclosures law, for now, but the threat to the economy remains as parliament will convene extraordinarily to discuss the veto. We can only hope the opposition parties will surprise us and show some prudence and a sense of responsibility this time.