Banks cautious on government plan to bail out investor debts

BANKS would be getting the best deal possible if they accepted a plan drafted by political parties to bail out debt-stricken investors who owe around £250 million in investment loans, DISY deputy Demetris Syllouris said yesterday.
The Finance Minister on Thursday tabled a plan before the House Finance Committee, designed to bail out thousands of investors who took out loans to buy shares in 1999, only to see the value of their stocks plunge the following year.
Government Spokesman Kypros Chrysostomides said there was a range of plans under study to help debtors.
According to daily Politis, the plan provides that the state would assume around 40 per cent of investor loans by issuing the banks with 10-year bonds.
The banks would be asked to write-off around 30 per cent of the debt and investors would have to pay the rest, under a new agreement with the bank.
Syllouris explained that, according to the plan, an investor who owed £100,000 would end up paying £25,000.
He said investors would have to relinquish their shares to a special body set up by the government to manage the situation.
Syllouris estimated that shares worth £100,000 back in 1999 would today cost around £15,000.
The shares would be handed over to the state and the debtor would be left with around £10,000 to pay back to the bank in the form of long term loans.
“Around £20,000 owed are interest and management fees, which I think banks do not deserve and should not get,” Syllouris said.
He added: “They should lose an additional £15,000 – total cost £35,000 – and the rest, £40,000, will be put up by the government in the form of bonds guaranteed by the state.”
The DISY deputy said the state would not have to pay any money, thus avoiding trouble with the European Union.
Syllouris said banks should be very happy with the deal because he did not think they would get more money by taking people to court, and certainly not any time soon.
“They would never be able to get money or at least not any time soon or more than £65,000; with this arrangement they immediately get £65,000, and solve their problems with their customers, who will be reactivated to the benefit of the banking sector and the economy in general,” Syllouris said.
The chairman of the investors association (PASEHA), Demetris Hadjipapas, had his reservations about the plan, which he claimed was designed to save the banks.
“This plan is basically salvation for the banks, which have deceived the people, and for many investors who do not know the ways through which they had been deceived,” Hadjipapas said.
He said PASEHA had not been informed about the plan, adding, however, that the association would not reject it before studying it.
“We do not reject it initially; we must discuss it and look at it in its entirety,” Hadjipapas said.
A spokesman for the Commercial Banks Association (CBA) said he did not have the details and did not wish to comment on the specific plan, but repeated what the banks have been saying all along concerning various schemes to help debt-stricken investors.
“We do not accept any legislative arrangement of the issue because it would cause irreparable harm to the banking system’s reliability,” Michalis Kammas told the Cyprus Mail.
He added: “What the CBA said is that if the executive and legislature agree on a plan we are willing to study and discuss it without any commitment.”
Kammas said that as far as he knew the association had not been briefed by the House on the specific plan.
“But any plan should not affect the financial strength and stability of the banking system.”