By Stelios Orphanides
Cypriot authorities are reviewing various the scenarios for setting up a non-performing loans management body to will relieve private lenders from part of their delinquent portfolio, which totals over €21 billion, two sources said.
Decisions about significant aspects of the plan – including its size and the extent of government participation – are still pending, said one of the sources, who spoke on condition of anonymity. In addition, weaknesses in insolvency and foreclosure legislation, modernised as part of Cyprus’ bailout agreement more than three years ago, are still a cause for concern.
The Central Bank of Cyprus, which is involved in the preparation of the draft legislation with the Ministry of Finance, has already sent a memo to the ministry.
“Having a purely privately funded body is an unachievable goal,” the first source said. On the other hand, it is understood that the high public debt, which is projected to have fallen to slightly below 100 per cent of economic output last year, is a significant constraint for the government’s participation.
This again, raises the question of the return prospective private investors should expect against the price at which banks will sell non-performing loans to the body, the source said, adding that ‘depending on how they will be managed, there is a chance for private investors to lose money’.
Investors will also be expending ‘adequate incentives’ should the body have to deal with non-performing loans that require legal action, he continued, adding that an overhaul of judicial procedures may help address concerns, mainly by reducing the time required for rulings.
“All in all, the legislation is good, but it has gaps and the judicial system needs to be fixed,” the source added.
A second official, who also spoke on condition of anonymity, practically ruled out a participation of the government in the scheme with its own funds, adding that it will restrict itself to the preparation of the legislative framework.
“The government’s role will be supplementary,” the official said, adding that all other stakeholders, including banks and borrowers will have to contribute.