Banks on Friday expressed concern about the bill passed by the Cyprus Parliament, and spearheaded by Akel, late on Thursday which would declare the suspension of mortgage loan payments to Small- and Medium-sized Enterprises (SMEs).
The legislation, which is currently being considered by Cyprus President Nicos Anastasiades, classifies SMEs as earning less than €2 million in revenue per year, and which have no more than 10 employees.
The Plenary Session of the Parliament with 31 votes in favour, 17 against, voted into law the bill submitted by AKEL which amends the basic law so that it suspends foreclosure procedures until March 31, 2021 in the case of main residence, the value of which is not exceeds € 350,000 and the professional headquarters of SMEs.
Cyprus banks yesterday voluntarily agreed to suspend mortgage payments on mortgage loans valued up to €350,000 made to households. This was in an effort to show sensitivity to social issues, as ejecting people from their homes in a recession would not be constructive, banking sources said.
Banks did not, however, feel that the same logic applied to small businesses, according to industry sources. The loss of a place of business is a severe blow, but not comparable to losing one’s primary place of residence.
The banks therefore did not include SMEs in their voluntary loan payment suspension.
Loans to this kind of enterprise make up a considerable part of the Cyprus banks’ loan portfolios. However, the banks currently allow for about 20 per cent of these loans to wind up unpaid, according to analysts. If. at the end of the suspension period, the percentage of unpaid loans is at about that level, banks should not suffer extensive increases in costs.
If, however, a much larger percentage of these loans are not paid back, banks will suffer high costs and issues involving loan provisioning, analysts noted. About 15 per cent of these loans
For now, the Association of Cyprus Banks had no comment on the bill. Banking sources indicated that the association is waiting for more clarity from the political forces involved. But analysts said that it would almost certainly be strongly opposed by the association should it move forward.
Banking sources said that a long suspension of foreclosures “could have been catastrophic, as there are already a number of cases that go back many years.” In fact, 15.6 per cent of non-performing loans show delays of over 10 years.
Action by the President is awaited, as he could choose to send the bill to the Supreme Court for consideration of constitutional issues.
