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Banks’ chief says Estia mortgage scheme will need thorough rethink

Governor of the central bank Constantinos Herodotou addressing MPs

DEBTORS’ interest in a government-backed mortgage relief scheme has been underwhelming, the governor of the Central Bank of Cyprus said on Thursday.

Speaking in parliament, Constandinos Herodotou noted that by mid-November banks participating in the ‘Estia’ scheme had received just 1050 applications from individuals with non-performing loans (NPLs).

The combined value of these applicants’ NPLs came to €206m.

It’s a trickle compared to bank estimates, according to which some 13,000 people are eligible to apply for the scheme, with combined NPLs worth €2.7bn.

“Based on these unsatisfactory results, banks must now examine ways of handling those who will potentially be left out of Estia,” Herodotou told MPs.

The Central Bank will expect lenders to submit proposals on the matter.

Herodotou cited a number of possible reasons for the scant interest shown in the scheme.

One reason could be that people are expecting a second, ‘better’ scheme to be rolled out. But this was not an option, the central banker clarified.

Debtors are also reluctant to reveal details about their assets, since the data required on the application form is quite exhaustive.

Answering MPs’ questions, Herodotou pledged the Central Bank will soon be ready to present to parliament a foreclosures complaint mechanism.

The text has been completed, it has been shown to the European Central Bank, which in turn has provided some feedback.

The text will form the basis for a government bill. The final draft of the legislation is expected to be tabled to parliament before the Christmas holidays.

The complaints mechanism is targeted at borrowers who feel unfairly treated by their bank. It will protect, for example, a borrower whose bank does not exhaust all options to restructure a loan before sending him/her a foreclosure notice.

Despite the removal of a large chunk of NPLs from banks’ balance sheets, helping reinstate Cyprus’ sovereign credit rating to investment grade, the International Monetary Fund has repeatedly said the island continues to be saddled by excessively high public and private debt, a drag on the economy.



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