Brussels, 13/02/2014 (Agence Europe) - The burden of non-performing loans (NPLs) on Cypriot banks needs to be addressed as a matter of urgency, a high-ranking EU official told a few reporters on Wednesday 12 February.
The official says that half of Cypriot banks' loans are non-performing and, until August or September, little was done to contain the rise of NPLs. Cypriot banks now apply a special code of conduct to contain and deal with the problem.
This is quite a complex exercise when it comes to dealing with borrowers. The official said: “We would not support a general moratorium” on house repossessions because that would act as a disincentive for mortgage-holders to repay their debts, but at the same time, the insolvency regulations have to provide safeguards to guarantee a decent standard of living.
The official explained that the second phase of the easing of the restrictions on the movement of capital will begin soon (see EUROPE 11016) and would not last long. Beforehand, the free circulation of capital would need to resume nationally and the mergers of cooperative banks would need to be complete for this. So far, of the 90 banks that have to merger into 18 banks, 70 have merged into 14.
Commenting on the imminent bank stress tests at EU level (the most recent analysis of Cypriot banks dates back to March 2013), the European official said he would be surprised if anything major were to emerge, but refused to predict outcomes.
Calendar. The Cypriot authorities have two prior actions to introduce by the end of February - a law on privatisation and a “Fiscal responsibility and budget system law”. Once they have been implemented, a Eurogroup meeting in March is expected to give the go-ahead for the next aid instalment for Cyprus (€150 million from the European Stability Mechanism and €86 million from the International Monetary Fund). The parliaments of countries that require national approval of eurozone financial aid will vote on the measure from 10 to 15 March and the aid will be disbursed in early April. (EL/transl.fl)