articles | 28 November 2019

Central Bank urges banks to prepare Plan B for toxic borrowers

Cyprus Central Bank governor Constantinos Herodotou has called on banks to draw up a Plan B on how to deal with thousands of defaulted borrowers who will not join the government subsidised ESTIA scheme.

Disappointed with the response to the state-funded Estia scheme to help distressed borrowers with toxic mortgages, Herodotou said only 1,050 have applied for help.

According to data put together in March 2019, some 13,800 with toxic loans were eligible to join the scheme.

Herodotou was briefing the House Finance Committee during his presentation of the Central Bank’s 2020 budget.

"Based on the disappointing number of applications submitted so far, banks should consider how to deal with those who may be left out of the ESTIA scheme," he said.

He added that the CBC is expecting the banks to submit a three-year plan to bring down their exposure to toxic loans, a plan which will also be presented before international monetary bodies.

Referring to the reasons that may lie behind the low number of applications, he said people expected a newer scheme which may be more favourable for borrowers. He stressed that this not in the cards.

The CBC's position is that people should be taking advantage of ESTIA. Heredotou argued that the limited number of applications filed might be an indication that a large proportion of borrowers do not want to disclose their real assets.

While the truly vulnerable may find that they will be rejected by the plan, which he said is a shame because they have to be identified.

Heredotou referred to red tape issues which are making life difficult for borrowers trying to put together their applications. He noted that the CBC will do its part to make things easier for borrowers in distress who want to take advantage of the scheme.

Estia is a special government scheme drawn up by the Ministry of Finance to enable struggling borrowers to repay their loans by subsidising part of the repayment of a restructured loan.

ESTIA was launched in September in an attempt to reduce Cyprus’ bad debt mountain.

Analysts attribute the failure of the government plan to a large number of strategic borrowers who chose not to take part in the scheme as they feel no substantial risk of losing their primary home.

The ESTIA scheme covers borrowers that had non-performing loans up until September 30, 2017. The plan only covers vulnerable borrowers whose market value of their home does not exceed €350,000.

Source: Financial Mirror

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