On their part, international lenders said Cypriot authorities continued to meet fiscal targets with significant margin in the first half of the year, as a result of prudent budget execution.

The main sticking point during the fifth review, was the bill on foreclosures, which international lenders consider crucial in the effort to rein in rising non performing loans (NPLs)

“We have reached agreement on the only prior action to the release of the next tranche of international aid was the foreclosures bill,” Georgiades told reporters in the afternoon.

The agreement entails suspending the application of the new law for primary residences until a second piece of legislation concerning insolvencies, is put in place at the end of the year.

The foreclosures bill will be discussed by cabinet on Wednesday. It must be approved by parliament before September 12 for Cyprus to receive the next tranche of assistance amounting to €436 million.

The foreclosures bill became the bone of contention among political parties, with some threatening to reject it in parliament if safeguards were not put in place to protect first residences.

When asked, the Finance Minister’s message was clear: “I believe this is a balanced bill that protects the rights of both depositors and borrowers – because let us not forget that banks are merely conduits between depositors and borrowers. So yes, I think this is a bill that can be voted by the House.”

The main aim of the new bill is to make it easier for banks to go after borrowers’ who fail to meet their obligations.

It can take some 20 years for a lender to foreclose on a property under the current legislation.

“It is important to note foreclosure cases dating back to 1997 are being tried this year,” Georgiades said. “This reform was a necessity, and we have agreed key elements. These include borrowers’ right to resort to the courts, mediation and borrowers’ appraisals.”

The main change is the introduction of private auctions, instead of them being carried out by the land registry, which would save considerable time.

There will be two evaluations – one by the borrower and one by the lender. If they disagree, there will be a third independent final evaluation.

The reserve price will be set at least 80% of the evaluation and will remain so for three months. If the property remains unsold, the reserve price will drop to at least 50% of the valuation and will stay there for nine months. Failure to sell means a new valuation and a repeat of the procedure.

A senior EU Commission official said the foreclosures legislation was necessary to pressure borrowers to come to the table and negotiate restructuring their loans.

The official did not share the concern voiced by parties that banks would go after the ordinary peoples’ homes.

Would a rational bank go after thousands of smaller loans or use the instruments to go after big loans? the official said.

The official said Cyprus was doing well but it had to get a handle on NPLs “and that means putting legal instruments in place. It is entirely in your hands.”

NPLs exceed 50% of the banks’ loan book and “it is crystal clear that this is an issue that needs to be addressed.”

The official conceded that a lot of people were having difficulty repaying theirloans but the country’s economic fundamentals could not justify the scale of NPLs.

“What is very clear is that current laws are not working.”

Source: Cyprus Mail