articles | 29 June 2016

EC approves Cypriot state aid scheme for borrowers

The European Commission has found a Cypriot scheme to support private households and micro companies that encounter difficulties in repaying loans to be in line with EU state aid rules.

Eligible borrowers can get a grant that does not need to be reimbursed, provided that their loans are secured against their principal residence.

The aim is to avoid that these borrowers lose their principal residence. The grant will be paid out through banks in Cyprus. It is restricted to a maximum amount of €10,000 per year and borrower, for a maximum period of three consecutive years. The scheme has a budget of around €2 million per year. With respect to private households and micro companies, the grants are either of a social character or too small to have an effect on trade.

This part of the measure therefore involves no state aid. The Commission also assessed whether the measure could confer an advantage to the banks that pay the grants. The Commission found that the grant scheme increases the amount of repayment the banks receive from their non-performing loans. This provides an indirect advantage to the banks and therefore involves state aid.

However, the Commission’s assessment showed that the measure would not create undue distortions of competition among banks. It found that the scheme was well-targeted, limited in time and scope and that the indirect aid to the banks was limited to what is necessary to achieve its goal, namely to avoid that the borrowers lose the house in which they live.

Moreover, since all mortgage lenders established in Cyprus are able to participate in the scheme, it is non-discriminatory. The Commission has, therefore,concluded that the scheme is compatible with EU rules.

Source: InCyprus

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