Parliament is expected by July to vote on a package of legislative proposals granting tax relief to bank debtors.
On Monday, the House finance committee continued discussion of four bills which aim to give incentives to people who wish to sell their house as part of restructuring their debt with a bank or to settle a non-performing loan (NPL).
Under the proposals, these persons would be exempt from paying income tax, capital gains tax, stamp duty and the special defence contribution.
A fifth bill would exempt from payment of transfer fees those wishing to sell their property in order to restructure their debt or settle their NPL.
The above tax relief had been granted to banks in 2015 as an incentive for them to engage in debt-for-asset swaps – acquiring debtors’ properties in exchange for the debt.
According to Disy MP Averof Neophytou, who co-authored the bills, the proposals will also cover cases where borrowers sell their house on the free market.
He said borrowers will be able to sell their property on the market for a higher price, since when a bank engages in a debt-for-asset swap it takes over a property at the forced sale value, which is far lower than the market value.
Currently, the island’s largest lender Bank of Cyprus has on its books properties worth some €1.6bn from debt-for-asset swaps.
The proposals, Neophytou said, kill two birds with one stone: they will allow borrowers to seek the best possible price for their property, and at the same time reduce banks’ risk exposure, since “the banks have ended up becoming large landowners”.
The bills appear to have the support of all parties, although Akel’s position is that further steps are needed to tackle the problem of NPLs.
Central Bank officials told MPs that the proposals were in the right direction, as did the financial ombudsman.
Also on board is the ministry of finance and the Association of Cyprus Banks.
Greens MP Giorgos Perdikis griped that a bill he previously co-sponsored was being left by the wayside.
Under that bill, mortgages granted prior to the passage of the foreclosures law on September 9, 2014 would be exempted from foreclosure proceedings. It garnered almost zero support.
The International Monetary Fund, the European Central Bank and the European Commission have repeatedly warned Cyprus of the dangers of not reducing NPLs on banks’ balance sheets. They say that the slow pace of NPL reduction is chiefly due to a weak foreclosures system.
