Any extension of the freezing of foreclosures until the end of the year or beyond, would bring potential negative effects and disproportionate costs to both the state and the banking system, the finance ministry has warned.
The House finance committee is discussing five bills tabled by various political parties with the central focus of freezing foreclosures due to the pandemic crisis.
However, CNA reported on Sunday that it had obtained an internal finance ministry note warning against any such move.
It reportedly points out the existing foreclosure processes are related to past non-performing loans and have nothing to do with the pandemic and do not, in any case, include mortgaged primary residences worth up to € 350,000.
The party proposals are due to be discussed again at the House committee on November 5.
According to the ministry note, banks have already incurred heavy losses in the first quarter due to the pandemic. These problems are likely to increase when thousands of suspended loan payments resume in January 2021, many of which will also become NPLs.
“The suspension of foreclosures will then be an obstacle in the effort to deal with the new wave of NPLs that is expected with the end of the suspension of loan installments,” the note read.
Constantly changing the goalposts when it comes to foreclosures may “bring disproportionate costs to both the public and the banking sector, strengthening the culture of non-repayment of loans to the detriment of the taxpayer, depositors and consistent borrowers,” it added.
This in turn would bring more EU scrutiny and negative views from ratings agencies “burdening banks’ balance sheets and leading to supervisory requirements to increase provisions and new capital needs”.
“The European Commission is already evaluating the new amendments to the framework that entered into force in June 2020, not excluding the taking of any measures against the Republic,” the ministry added.