Georgiades says pressure intense to reform NPL laws


By Stelios Orphanides

The finance minister said that Cyprus is under ‘intense pressure’ created by an increasingly strict banking supervisory framework to once more modernise its insolvency and foreclosure legislation, with banks facing potential fresh losses.

The insolvency and foreclosure framework currently in place, enacted three years ago after dramatic negotiations in parliament as it was required under Cyprus’s bailout terms, has proved to have “gaps, weaknesses that trigger excessive pressure by the European Central Bank (ECB) to the Cypriot banking system and ultimately to borrowers,” Finance Minister Harris Georgiades told reporters on Thursday after the council of ministers approved a bundle of bills to modernise the laws in question.

“We therefore believe that there is a need for an urgent improvement to this legislative framework on individual but yet important aspects rendering it more effective,” he said.

Georgiades said that every additional year required to foreclose, translates to “a cost of hundreds of millions (of euros)” for the banking system in the form of increased provisions for loan impairments and capital requirements, which in turned is burdened by borrowers.

“We must therefore undertake this correction and we appeal to parliament to pass this framework as early as possible, before the summer recess,” he said.

The minister’s comments came hours after a Central Bank of Cyprus official warned lawmakers that a possible failure to approve a law allowing the government to extend guarantees to Hellenic Bank shielding it from potential losses caused by an underperformance of Co-op assets, would have disastrous effects. The European Commission’s competition watchdog approved on June 19 the scheme that would allow the government to extend aid to Hellenic on condition that it would reform its legal and judicial framework in such a way that it would allow a reduction of non-performing loans in the banking system, which account for roughly €22 billion, or almost half of the total.

Earlier this month, the International Monetary Fund, which participated in Cyprus’s bailout five years ago, criticised the social and political acceptance of strategic default.

The current insolvency and foreclosure framework was the result of compromises among parties and endless parliamentary and public debates that rendered it toothless.

“The supervisory framework across Europe is getting continuously stricter and more demanding and it is therefore our obligation to take our measures to prevent this intensive supervisory pressure from leading to a destabilisation of our banking system or to excessive pressure on borrowers,” the minister said.

The Co-op agreement, which allowed the transfer of the state-owned bank’s operations to Hellenic Bank including €9.7bn in deposits, a large part of which the government would have to otherwise guarantee, “was a tough but necessary decision to avert risks”, Georgiades said.

“I share the view expressed by the Central Bank (of Cyprus) that under the circumstances, the agreement was the best possible, taking into account that otherwise additional supervisory measures would be possible,” he added.


The bills are expected to be put on vote on Friday next week.


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Stelios Orphanides is a journalist at To contact Stelios Orphanides: [email protected]

  • Cydee

    I won’t hold my breath.

  • Kevin Ingham

    I imagine that many of the MP’s and their families will be in the front line if there is action on the NPL’s, but it is now showdown time.

    Cyprus is broke, it’s banks are broke and failure to pass this legislation will see it’s banks fail and it’s economy collapse.

    It got 5 years to sort out it’s endemic problems and it did nothing except flog a few passports to the benefit of a select few.

    There is about Euro 20 billion of unearned cash in the Cypriot economy that needs to be paid back to the banks and if that doesn’t happen the EU will pull the plug – that simple.

    10-15 years hard payback, or third world status- take your pick Cyprus

    • The Truth

      Good summary – but you missed out it’s not their fault they are in this mess.

      • Adele is back x

        Bless em ….

    • JS Gost

      5 years, with the EU imploding I give it 18 months at best.

    • A is B

      Do you really think that the EU will do something.

      • Kevin Ingham

        Depends. Cyprus is a minuscule economy that doesn’t really pose a threat to the existence of the Euro. It could be used to make an example of I suppose, but it can just leave Cyprus alone.

        The debt that the banks run up will simply get stuck on the national debt and ultimately result in it requiring another bailout (very much like Greece)

        If Cyprus doesn’t change it’s banks will continue to struggle and so will it’s economy.
        That will lead to a situation in which the country is asset stripped by foreign investment leaving ordinary Cypriots second class citizens in their own country

        • A is B

          Why would the Cypriots be second class citizens? Surely foreign investment, management and leadership is what they need. Just chewing the fat and learning. [me]

  • JS Gost

    So how does he justify tax relief for people with NPL’s ? Headless chickens look more organised and consistent. The culture of trying to keep everyone happy, no matter the cost, has to end.

  • BearFace


    If accurately translated into English this implies that the true intent and purpose of the measures is to create a smokescreen so that the full extent of non-compliance with EU banking rules isn’t detected and exposed by further investigations by the supervising authorities. It’s all about preventing more intensive supervision rather than true reform!

    The expressed purpose of formally passing the measures seems to be to create some window-dressing which will satisfy the supervisors so they’ll stop looking and Cyprus can dodge a more careful and detailed examination of its currently unstable banking ‘system’. The other stated purpose is to provide some smoke and mirrors which will keep borrowers (and guarantors) off the hook by not exposing them to the ‘pressure’ normally applied to them in other jurisdictions to comply with loan agreements.

    Quite why the pressure that’s normal (and proper) elsewhere amounts to “excessive” is beyond me. It certainly exceeds the level of ‘pressure’ afforded by the current legal provisions in Cyprus but that’s because, as levels of NPLs demonstrate so strongly, the current level of ‘pressure’ tends towards zero!

    If the minister’s words (as reported) reveal the true motives and objectives then this does not bode well for genuine reform of banking and legal practices. Putting lipstick on a pig simply isn’t enough.

  • almostbroke

    Why under pressure ? Just carry out the fundamentals ‘pay what you owe ‘ dispense with rusfeti , populism, ! period

    • Evergreen


    • Costas Apacket

      it’s under pressure Cypriot Style. E.g. pay back what you borrowed on time.
      I know. It’s unheard of.

  • PPetrovicho

    Geo unable to apply the intense pressure himself has passed the buck. Can’t blame him but he must see this through to the end.

  • Costas Apacket

    When will the donkeys get it through their thick skulls that one GC needs to confiscate the property of another GC because he or she has not paid what they owe.

    There’s the rub, because Cypriots think they own the country and can do anything they want with it.

    Now’s the time to dispel that myth.

    • divadi bear

      Costas Apacket:
      You have chosen the correct word, “Myth”. I can’t count the number of times that word has come to my mind when talking to Cypriots.
      The best solution would be for Cypriots who have NLPs, to experience living in a self-made-tent !
      The banks should collect their collateral ! It would be a shock to the banks to find that that collateral had already been mortgaged to a third party in many cases !