02.02.2023
Yesterday, Tuesday, January 31, 2023, the last three-month suspension of investment withdrawals, introduced by a House of Representatives resolution, ended. It is expected that from today, February 1, a flood of foreclosure letters will be sent out.
Many foreclosure procedures will begin in mid-March, 45 days after the letters are sent. As a result, starting today, we will begin to see a large number of publications about the sale of properties in Cyprus, as required by law for publication in the press.
It is assumed that after two years of suspension of foreclosure due to the pandemic by banks and three months of consecutive suspensions at the initiative of deputies, by March 2023, a sufficient level of foreclosure sale will be reached.
Barring an emergency three-month suspension of foreclosures after Parliament reopens, there will be 100 to 200 foreclosures per month in the future. And these figures are justified, since a significant “stock” of objects associated with problem lending has accumulated.
The whole structure of foreclosure and how to make it fairer for borrowers, as well as making it more profitable for banks and lenders, is now in the hands of the new government and parliament.
To determine if we return to permanent suspension, the new government will have to consult with Parliament and look at both sides of the issue.
First, it remains to be seen whether the infamous “special court” will actually be set up to hear only real estate, credit, bank and loan-buying firm cases, and to serve as a “clearing house” to which apply to every borrower if he really qualifies for it.
Second, it is necessary to work with the Treasury to determine when and how the “project” will move from mortgage to rent to help the most vulnerable borrowers, those who are unable to make any payments, to keep their homes.
According to the latest Financial Bulletin of the Central Bank of Cyprus, which mentions non-performing loans in the banking sector, they decreased by 90.5%, from 28.4 billion euros in December 2014 to 2.7 billion euros in October 2022, mainly as a result of actions taken by the largest banks from 28.4 billion euros to 2.7 billion euros.
However, the NPL ratio as of 31 October 2022 was 10.5%, which is still significantly higher than the European Union average of 1.8%. CBK warns that there is a real risk of deterioration in the quality of banks’ assets.
Preventive restructuring
In terms of the quality of the bank loan portfolio, despite the subsequent pandemic-related crises, the non-performing loan balance (NPL) continued to decline in 2022 at a slower pace than in recent years, primarily due to the sale/transfer of loan portfolios to credit companies and writing off loans.
The CBC adds that the economy continues to be saddled with high levels of private debt as a result of loans given to loan acquisition companies. He notes that since the pandemic, the percentage of loans that have been identified as representing increased credit risk has increased.
The ease with which companies will be able to service their credit debt in the near future will depend on changes in household disposable income and business profitability. As such, continued scrutiny and prudent restructuring by banks is imperative in light of the CBC’s warnings in this regard.
