By Stelios Orphanides
A senior finance ministry official said on Wednesday that Estia, the scheme designed to help struggling borrowers repay their loans, may provide a reduction of up to 50 per cent in their debts, coming from partial debt relief and reduced rate.
The scheme was passed on Tuesday by the council of ministers amid a general anticipation by political parties seeking the opportunity to extend support to affected voter groups following the island’s third banking crisis in six years.
Estia “leads to a considerable decrease of the obligations of borrowers”, said Andreas Charalambous, head of the finance ministry’s directorate for financial stability. “We estimate 50 per cent.”
Charalambous, who was commenting in an interview to state-radio CyBC in the morning, said that the scheme “introduces proper incentives and therefore, response will be big allowing the scheme to succeed”.
The scheme allows borrowers, households or small and medium-size enterprises (SMEs), who have pledged their primary residence with a value of up to €350,000 as collateral, to have one third of their monthly payment paid by the taxpayer. Borrowers with an annual income of below €50,000 are eligible provided that the net value of their assets does not exceed to 125 per cent of the value of the home, i.e. €437,500.
According to the finance ministry official, Estia is expected to cover loans of up to €3bn.
A precondition is a loan restructuring which reduces the loan to the value of the collateral -and so burdening the bank-, Charalambous said. It also extends the repayment period up to 25 years depending on the borrower’s age and reduces the annual interest rate to 2.5 per cent plus Euribor with a maximum cap of 3.5 per cent.
Euribor is the average rate at which banks lend euros to each other.
Charalambous said that his optimism about the scheme’s success was also based on his belief that banks which participated in the “extended consultations” will also seek to benefit from the scheme.
“Everyone is contributing, bank, borrower and state,” he said. “The government has a 20 per cent contribution and because it is in the long-term, it is within what the budget can afford.”
Government spokesman Prodromos Prodromou said on Tuesday that next year’s budget will contain an item of around €30m to cover Estia. The expense will be financed by revenue from the legacy Co-op, which will initially administer €7bn in non-performing loans and come in the possession of the government following the completion of the acquisition of the healthy operations of the Cyprus Cooperative Bank by Hellenic Bank.
He also said that the government which intends to assign the implementation of Estia to the Cyprus Land Development Organisation, a state-sponsored agency tasked with constructing social housing, will help it build up its administrative capacity. In order to reduce the requirements for the latter low, the criteria of Estia were kept simple.
In a subsequent telephone communication, Charalambous said that existing legislation ensures that fraudulent statements by applicants can be criminally prosecuted.