Cyprus’ outgoing Central Bank Governor said the government must move to allow foreclosures and seizure of debtors assets to offset bad loans, which make up 50 percent of bank holdings during an economic crisis.
The government last need got a 10 billion euro bailout from international lenders that came with conditions that it come up with 13 billion euros in revenues or cuts on its side.
Demetriades, who will leave office April 10, said too many people who can afford to pay are taking advantage of the crisis and their properties should be seized to deter others from trying the same strategy.
“There’s a lot of strategic default happening,” Demetriades said in an interview with Bloomberg. “Borrowers need to know that there’s a consequence when you don’t pay. It’s still the case that the banks are not able to basically carry out any repossessions in any meaningful timeframe. That’s the top priority now, to address NPLs,” or non-performing loans.
He said that will be politically difficult, especially in the current atmosphere in which President Nicos Anastasiades is still reeling from reneging on a campaign vow not to seize bank account assets.
Depositors with more than 100,000 euros in the bank lost 47.5 percent of their money but Demetriades wants them to pay what they owe to the banks who took their cash.
Rising unemployment, falling credit and the bad-debt stock are the challenges facing Cyprus’ bailout program implementation and the road to recovery, according to an International Monetary Fund staff report.
According to the IMF, about 50 percent of total loans in the domestic market are classed as non-performing, nominally worth 22 billion euros.
“There will be difficulties as regards this legislation,” Demetriades said. “I see the legislation as a deterrent to strategic default,” he said, adding that “there’s a lot of politics” surrounding the discussion.