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Banks sound the alarm for their capital

28/08/2015 10:34
The regulations for deleting developers’ mortgages without new collaterals by them or by property owners create a capital gap for the banks, which are sounding the alarm about the bill that attempts to free buyers from insolvent developers.

With the bill, the government seeks to provide a solution for the tens of thousands of cases of buying property from insolvent developers. While buyers in these cases, are trustworthy and pay or have paid their loans, properties bought are mortgaged in favor of the bank by the developer, therefore there is a risk for their foreclosure.

As reported yesterday in parliament, the problem is very big because there are 48 thousand residential units for which title deeds were not issued while another 30 thousand residential units have title deeds but they are not yet transferred.

Because of the size of the problem, banks are concerned that the bill’s specific provisions will affect their capital adequacy.

The size of the capital consequences remains unknown, since in many cases there are no reliable data for other mortgaged collaterals which may be assigned by the developer against the properties that will be transferred to property owners. Also there are no accurate data for buyers, as many developers sold properties to buyers who paid in cash without informing the bank.

As a result, the deletion of mortgages, which is a provision of the bill, creates a gap in the banks’ tangible collaterals, which implies the need for additional funds.

The banks argue that the buyer must assign the property as collateral to the loan they received, if they are to use the provisions of the bill.

They also object to the deletion of the mortgage of the developer, as this will favor those developers who declare that they have no other property or collateral to assign, but will also affect the constitutional right of ownership, which the banks consider having over the debtor.

"Any passage of a law which deletes mortgages without the mortgage debt being paid affects capital requirements for banks since they are left without collaterals," a relevant document submitted in parliament by the association of Cyprus banks supports.

It is noted that many developers «have no other property to be mortgaged to replace the deleted mortgage. Also, even if there is other property it is very difficult to have the same value as collateral to the mortgage that has been deleted. "

This bill is a requirement included in the memorandum for the disbursement of the next tranche of € 0,5 bn and should be voted until September 3.

The parliament intends to push the bill in plenary soon, since it will solve the problems of tens of thousands of citizens.

Several members of the parliament however, identify gaps in the bill as does the attorney general, who asked that the various provisions of the bill be discussed in depth.

Minister of Interior Socrates Hasikos said repeatedly that the banks should bear the consequences of extending bad loans to developers.