News Column

Bad loans on primary residences less than 15 per cent of total

July 31, 2014



By Elias Hazou

NON-performing loans (NPLs) on owner-occupied housing account for less than 15 per cent of all NPLs, according to latest data from the Central Bank.

While not insignificant, the proportion of delinquent loans for primary residences pales in comparison to the overall NPL figures.

At the end of May/beginning of June, total NPLs for commercial banks and cooperatives amounted to 28.38bn, of which just 4bn (or 14 per cent) were tied to owner-occupied housing loans.

The Central Bank of Cyprus (CBC) defines as "owner-occupied" as primary residences the subject of heated political debate.

Where borrowers are concerned, they can have only one owner-occupied primary residence, a CBC spokesperson said.

The data is available on the CBC website here: http://www.centralbank.gov.cy/nqcontent.cfm?a_id=13029&lang=en

The data shows that developers and contractors are far more delinquent compared to private individuals. For example, with commercial banks, the ratios of NPLs in the construction sector and in real estate activities sector (both classed as legal entities) were 69.5 per cent and 49.95 per cent, respectively. In absolute numbers, the total NPLs for these two classes amounted to 12.44bn.

By contrast, in loans to private individuals for owner-occupied housing, 35.98 per cent were tagged non-performing.

As far as the cooperatives go, the construction sector fared the worst, with 76.8 per cent (380m) of these loans classed as NPLs. Likewise, the 'real estate activities' sector exhibited total credits of 306m, of which 68.8 per cent were classed as non-performing.

Where private individuals were concerned, there were a total of 4.56bn in loans for owner-occupied housing, of which 44 per cent were non-performing.

Figures were not available on the number of primary residences with bad loans. According to anecdotal evidence cited by MPs back in February, there were 6,000 pending foreclosure requisitions filed by banks with the land registry up until then.

However shortly after, officials from the lands and surveys department were unable to confirm that number, nor could they say how many of these requisitions related to primary residences, as the criteria of what constitutes a primary residence were unclear.

A controversial foreclosures bill was approved yesterday by the Cabinet, the outcome of drawn-out negotiations between the government and international lenders. The legislation will allow lenders to liquidate properties used as collateral on defaulting mortgages in private auctions, following all attempts to salvage the delinquent loan through restructuring. Primary residences have been excluded from the bill's scope, a temporary arrangement until the end of the year, when the government is scheduled to have drafted and passed insolvency legislation, but has pledged to include a 'safety net' to offer alternatives to at-risk homeowners.

The foreclosures bill is set to be put to plenary vote, but all parties grandstanding or not have come out against it, with some politicians warning that thousands of people will become homeless if it is passed.

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Source: Cyprus Mail


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