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Coronavirus: Banks appear to back extending suspension of foreclosures

Banks appear to initially favour extending the suspension of foreclosures relating to mortgaged primary residences worth up to €350,000 but the final decision will be made early next week, it emerged on Friday.

According to the bank association the 10 lenders who took part in a discussion on Thursday said they wanted to discuss the matter with their boards first and secure approval.

The association will reconvene early next week to decide ahead of the next parliamentary meeting on Thursday.

Parliament was scheduled Thursday to discuss five proposals tabled by parties to extend the suspension because of the effects of the pandemic on the economy but it was postponed because of the meeting of the bank association.

Earlier, Finance Minister Constantinos Petrides said he had appealed to the bank association to apply targeted suspensions until the end of March next year “without risking the country’s credibility through legislative actions that would send the wrong messages to ratings agencies and the European Union.”

Any bills passed by parliament on the issue could nevertheless be deemed unconstitutional by the president and referred to the supreme court, thus defeating the parties’ purpose.

Extending a suspension of foreclosures on primary residences tied to loans is not expected to affect the banks’ activities in the next few months as they had already made an informal pledge not to move against such cases.

They do, however, start procedures when borrowers do not cooperate or are deemed unviable.

A law would stop this process, putting problematic borrowers out of reach.

The government, the central bank and foreign organisations have warned against such a move, which would further bolster the weak repayment culture and impact the lenders’ capital and provisions for bad debts.

It could also prompt ratings agencies to downgrade Cyprus to non-investment grade, a move that would make it impossible for the island to borrow from international markets.

During a previous meeting of the House finance committee, the central bank said 80.6 per cent of non-performing loans with primary residences worth up to €350,000 as collateral were past due more than 180 days. Of those, 34 per cent were behind between one and five years while 31 per cent showed delays of between five and 10 years.

Non-performing loans with delays of over 10 years reached 15.6 per cent.

The central bank warned MPs that the European Central Bank expected increased provisions for loans with big delays, something which could disrupt the banking sector like it did in 2018 with the coop bank.

 

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