International lenders put new pressure on Cyprus politicians Friday to agree delayed legislation on foreclosure procedures for bad loans in the latest review of compliance over a multi-billion debt bailout.
Legislation for the calling-in of non-performing loans contracted during the island's credit boom and crash that prompted the international bailout of March 2013 is a pre-condition for the next instalment of emergency loans that are desperately needed to rescue state finances.
The urgent call for its passage by parliament came as part of a fifth review of the debt-ridden island's compliance with crippling bailout terms by the troika of lenders -- the European Commission, European Central Bank and International Monetary Fund.
"Reversing the rising trend of non-performing loans is critical to restoring credit, economic growth, and the creation of jobs," the lenders said.
"Putting in place without delay an effective legal framework for foreclosure and insolvency is essential to ensuring adequate incentives to borrowers and lenders to collaborate to reduce the level of non-performing loans."
Legislation on tightening up foreclosure procedures on unserviced loans has been held up both in cabinet and in parliament as politicians fret about the impact of a swift reining-in of consumer debt on an economy already ravaged by nearly 18 months of swingeing austerity.
EU Commission officials who took part in the troika's review say that more than 50 percent of domestic bank loans are considered non-performing.
The International Monetary Fund has said that Cyprus's level of non-performing loans is the highest in Europe at almost 140 percent of GDP.
In previous reviews, the troika had praised Cyprus for sticking to bailout terms even at the cost of a sharp recession, but they are now insisting that the island accept more pain, even if it meant home repossessions and business closures.
"The authorities have pursued a cautious fiscal policy, which helped allow them to over-achieve fiscal targets consistently. Such prudence should continue, in light of lingering risks," the lenders said..
In return for 10 billion euros (13 billion dollars) in aid from international lenders, the island in March 2013 agreed to wind down its second largest bank, Laiki, and impose losses on depositors in under-capitalised largest lender, Bank of Cyprus.
Depositors in Bank of Cyprus were hit with a 47.5 percent "bail-in" as part of the bailout package
Recession-hit Cyprus needs to pass the latest review by the troika to receive the next tranche of bailout cash scheduled for late September. It has so far received half the 10 billion euros in emergency loans agreed last year.
The government concedes the biggest challenge facing the troubled banking sector following last year?s bailout "haircut" is clawing back bad debt.
International lenders do not expect Cyprus ?- suffering record 17 percent unemployment and a credit squeeze -- to exit recession before next year.
The European Commission estimates that the economy will contract by 4.2 percent in 2014 ?- lower than the initial 4.8 percent forecast.
But growth will be pegged back to 0.4 percent in 2015 rather than the previously projected 0.9 percent.
The troika?s review needs to be approved by Eurogroup finance ministers and the IMF for the next disbursement of 436 million euros.
Date created : 2014-07-25