President Nicos Anastasiades on Tuesday informed parliament that the two bills recently passed amending foreclosures legislation have been found to be unconstitutional as both he and his finance minister again urged MPs to withdraw the bills as they could cause serious damage to the economy.
Armed with the legal opinion of the attorney-general, the president now has the prerogative – should parliament decide to not accept the president’s veto and nix the bills – to refer the matter to the supreme court for adjudication.
The attorney-general found that the two bills passed by opposition parties are in breach of several articles of the constitution – including the right to freely enter into a contract, the right to enjoy one’s property, and equality before the law.
Assuming parliament doubles down and rejects the presidential veto, the case would be decided in court; until a final judgment is issued, the amending bills will have no effect.
Anastasiades had earlier refused to sign off on the bills, sending them back to parliament.
The president had said the changes made by opposition parties on July 12, the last session before the summer break, would defang banks’ ability to recoup loans that have gone bad by making it more difficult to repossess mortgaged properties.
The changes, he noted, would impact “the values of the collateral, straining bank balance sheets and leading to demands from supervisors for additional provisions and fresh capital.”
They were also a disincentive to attracting investors and increased the risk of credit downgrades for the banks and the country.
Cyprus’ sovereign bonds had spent six years in junk territory, finally reinstated to investment grade in September 2018, which allowed borrowing from international markets at low rates.
The amendments passed almost a year after improvements to the foreclosure framework were adopted in response to International Monetary Fund and European Union pressure that facilitated banks’ efforts to foreclose and which have started to yield results.
The changes introduced by opposition parties allow borrowers in default to obtain a court decision that stalls a foreclosure process if it is proved that a bank has not taken all necessary actions required by the central bank directive to restructure a nonperforming loan.
Amendments also include, among others, extending to 45 days from 30 days the payment due date following a notice and the auction of a property following a notice; and preventing the sale of a property at below 80 per cent of its market value for six months, from three months previously, while maintaining a floor of 50 per cent of the market value for any potential sale.
Weighing in, Finance Minister Harris Georgiades said the fact foreclosures regulations are now stuck in limbo causes uncertainty in the market, with potential adverse consequences on the entire economy.
“We need an effective legal framework, a stable one, precisely so that we may tackle the last remnant [of the financial crisis], that is, the non-performing loans,” Georgiades said during a joint news conference with Demetris Georgiades, head of the Fiscal Council.
He again appealed to parliament to withdraw the bills.
The minister said that though opposition parties might have had good intentions, their amendments would end up creating more problems rather than fixing them.
Similarly, Demetriades of the Fiscal Council warned that the longer the issue is up in the air, the more damage is suffered by lenders and borrowers alike.
He said borrowers whose property is being held as collateral by banks are on the one hand seeing the value of their property slide, while at the same time their loan balance is increasing due to accrued interest rate.
Although parliament is officially in recess, the body will convene extraordinarily on Monday to discuss and take a vote on the presidential veto.
Should all opposition MPs stick to their guns, they have enough votes to dismiss the veto – which would take the matter to the supreme court.
It all hinges on the Diko party, whose MPs appear to be split on the issue. Some Diko deputies had supported the idea of postponing the passage of the bills until after September, giving some time to the Estia debt relief scheme for homeowners to kick in.
But speaking on the public broadcaster on Tuesday morning, Diko vice chairman Alecos Tryfonides insisted the bills should stand.