BANKS yesterday warned of dire consequences to the economy if debtors followed controversial advice from House Watchdog Committee Chairman Christos Pourgourides that they halt repayment on “illegal” investment loans issued during the 1999 stock market bubble.
But Pourgourides stuck by his guns, arguing it was investors’ only chance of recovering some of their lost cash, while the governor of the Central Bank suggested investors consult their lawyers.
Pourgourides advised investors on Thursday to halt loan repayments, claiming bank loans for the purchase of shares in 1999 had breached Central Bank directives. His comments came after the House Finance and Watchdog committees accused brokerages of giving out unauthorised investment loans and commercial banks of surpassing loan limits set by the Central Bank in 1999.
The DISY deputy yesterday repeated his call, telling investors to delay payment to gain more clout at the negotiating table.
“I am not putting investors in a worse position. They may lose from the interest of a few months but if they pay now it would be almost impossible to find a solution. If the loans are outstanding, there is more chance of everyone sitting down and finding a solution,” he said.
But the Director General of the Bankers’ Association of Cyprus, Georgios Hadjianastasiou yesterday warned the consequences of holding on payments could cause instability to the banking system and the economy as a whole.
And he admitted that many investors had already taken it upon themselves not to pay.
“A lot of people don’t pay, which is why banks don’t have the results of the past. There is a huge expansion of provisions for non-performing loans
primarily due to this crisis. In fact, the only people who lost money from this crisis in the last few years are the banks – and, of course, the investors,” he added.
Pourgourides said he had made his suggestion with a complete understanding of the consequences, adding that if debtors paid the loans, the chances of getting any money back was next to nil. He argued the loans granted by commercial banks to investors were in excess of the limit set by the Central Bank.
The bankers’ spokesman rejected the claim. “A Central Bank directive existed, which put a 10 per cent limit on the total number of loans to be issued in 1999, whether they be made for hotels, commerce, trade, industry or the purchase of shares. It’s a fact that due to the excellent economic climate banks overtook those loan limits marginally and the Central Bank imposed fines,” he said.
However, Hadjianastasiou argued there was never a binding directive concerning loans specifically for the purchase of shares, although there might have been non-binding recommendations.
“The fact that we’ve taken administrative penalties does not make all loans in 1999, worth hundreds of millions of pounds, illegal. This is the crux of the problem, there is a lot of misunderstanding,” he said.
Asked whether commercial banks would consider wiping out the debt, Hadjianastasiou was emphatic. “Wipe out debt completely? This is not accepted anywhere in the world.”
“If the government or parliament have a scheme where they would take the burden together with investors and want to discuss with us the possibility of taking some burden or arranging certain facilities, we shall discuss it.”
Pourgourides, however, insists the loans were illegal, though he was not sure whether a court would annul them. “I am not certain that the courts would declare them void for illegality. There is illegality but whether it would render the transaction void is not at all certain because there is no precedent.”
The suggestion to wipe out all investor debt was an exaggeration, he maintained. “We don’t want to ruin commercial banks or demolish the banking system. We are after a solution, which would avoid ruining financial banks and investors. This is a serious social problem which must be tackled.”
The Watchdog Committee Chairman came out in favour of a package deal, which would cover everyone, including people who have already made loan repayments. How optimistic was he this was possible? “It’s extremely difficult but not impossible,” he said.
A final report on the fiasco where thousands of Cypriots lost millions on the stock exchange bubble will be ready before the end of the year, Pourgourides told the Cyprus Mail.
Meanwhile, Central Bank Governor, Christodoulos Christodoulou, refused to give his opinion on the issue raised by Pourgourides, insisting it was a legal matter. He suggested to investors to seek legal advice on the matter.
