Cypriot banks not pursuing developers for Payments
The Central Bank of Cyprus’ latest Residential Property Price Indices stated that there is fall in residential property prices for six consecutive quarters. The fall could have been even worse if the banks had pressed developers to service their loans by reducing new property prices still further to encourage sales. However, the banks are not putting pressure on developers as they fear this would have further side effects
Economist and ex-banker Symeon Matsis speaking to the Sunday Mail, said that the fall in property prices would have been worse if the banks pressed developers to service their loans by reducing property prices still further to encourage sales. His statement confirms widely held reservations that property developers are receiving insufficient income from property sales to service their loans – and that the banks are not pursuing them for payment.
Developers arrears are on the increase and the banks are bracing themselves for a further haircut on their Greek bond holdings. Banks tentatively agreed in July to take a haircut of around 21%. However, analysts are now saying that they may have to accept losses of between 50% and 60%.
Mr. Matsis commented: “If the companies were pressed into selling their assets, this would cause a drop in the value of collaterals”.
The Cyprus cabinet has approved three draft bills designed to shore up the banks that are heavily exposed to Greek government bonds and to establish an independent financial stability fund as well as immediate action to ensure stability for the management of the financial crisis. Government spokesman Stephanos Stephanou, based on recent developments said that the three bills approved by the Council of Ministers offer the required institutional and legal framework enabling Cyprus to mediate and back the financial system, should the necessity arise.
The first bill will allow the government to step in and reinforce a bank’s liquidity if required. The second bill would create a fund to help steady the banking system due to heavy exposure to Greek sovereign debt (estimated at some €4.2 billions) and with a high risk of default. The third bill extends the existing special tax for credit institutions. Although there is no money to put into the fund, a package of austerity measures has been approved by the government which includes such stalwarts as cutting 1,100 already vacant positions in the civil service and reducing entry-level salaries for civil servants by 10%.
Popularity: 1% [?]