“This is essential to allow for a resumption of credit to the private sector to support growth and job creation,” the Commission said in a statement. “Reforming the legal framework for foreclosure and insolvency is paramount in order to provide balanced incentives to borrowers and lenders to negotiate and reach agreement on restructuring of non-performing loans, while avoiding undue hardship.”

At the same time, it said, the supervisory authorities need to intensify their monitoring of banks’ effective action to collect and restructure debt in compliance with the existing Code of Conduct and arrears management framework.

The Commission said a second challenge was to maintain public finances on a sustainable path, and the third was to strengthen institutions. “Firm implementation of the government’s privatisation plan remains essential to increase economic efficiency, attract investment, and reduce public debt,” said the Commission.

Having said that, the Commission said, Cyprus’ programme remains on track. Fiscal targets for the first quarter of 2014 were met with a considerable margin, reflecting better-than-projected revenue performance and prudent budget execution, it said.

Addressing the pressyesterday, Finance Minister Harris Georgiades expressed the view that the review confirmed the progress made in all aspects of the programme, the correction of public finances, the promoting of significant reforms and banking overhaul.

“In this manner Cyprus regains its international credibility and confidence from markets and investors, at the same time creating the conditions for sustainable growth,” he said.

On the hotly contested issue of protecting primary residences, Georgiades explained that the Troika concurred on the need to treat these instances differently to general foreclosures. That is, while the government will press ahead with property foreclosure legislation, an extension was agreed with regard to cases involving primary residences.

“The Cyprus government asked for an extension of the timeframe in which the strengthening of the legislative framework that would allow banks to foreclose primary residences specifically coincides with the introduction of the insolvency framework, which is designed to protect and encourage loan restructurings and avoid extreme consequences for borrowers with temporary liquidity issues,” Georgiades said.

Georgiades also announced that the release of the fifth tranche of the €10-billion bailout loan by the Troika – around €680 million – will be carried out near the end of June, following a Eurogroup session on June 19.

He also announced that in the immediate future, on instructions from President Nicos Anastasiades, hewill be in contact with all political parties relating to Cyprus’ gradual return to the bond markets.

As was the case in 2013, the Troika’s forecast of Cyprus’ economic contraction for 2014 has been revised to 4.2% from 4.8%, and Georgiades reaffirmed the “joint expectation that 2015 will see Cyprus resume economic growth.”

Meanwhile, senior European Commission sources confirmed that the Troika has asked the Central Bank of Cyprus to arrange for the Bank of Cyprus and the Co-operative Central Bank boards to procure evidence of financial activity relating to current or former key stakeholders – board members, top managers, shareholders – in order to identify any misgivings and rectify instances of explicitly bad governance.

“There is an issue of principle here,” the source said. “I cannot venture a guess on the outcome, but the co-ops have been recapitalised with €1.5 billion of taxpayers’ money, so an effort to recoup some of that money will be made.”

“We asked the governments of the BoC and the co-ops to submit a special examination report on lending and debt-restructuring practices with respect to loans related to former or current managers, directors, members of committees, shareholders. We just want to see to what extent there are lending decisions of boards concerning themselves – we’re going to have a close look at that.”

This point raised the question of timing, as the decision for the Troika to investigate banking practices and possible abuse of power came over a year after banks were diagnosed as in dire need of recapitalisation, during which accusations of alleged wrongdoing by bankers abounded. The suspicion that someone was unhappy with the pace – and efficiency – of investigations into the banking meltdown by local authorities, and decided that the Troika should step in as a truly independent body, seemed legitimate.

“If one looks at the things we have asked the banks to do during this time, it has been extremely challenging,” senior European Commission sources said. “One can always debate what should have been done first, but our main concern has been to stabilise the banking system, there was a lot of work in restructuring the banks, it took a lot of energy and time. Now, having passed the extremely turbulent time, we have some scope for doing other things.”

Source: Cyprus Mail