NICOSIA, Cyprus – Cyprus’ international creditors said Friday that the country’s bailout program is making good progress as fiscal targets have been comfortably met, welfare reform has moved forward and more steps have been taken to shore up the banking sector.
But they urged authorities to tackle the high number of bad loans that are a drag on economic growth and job creation because they keep banks from lending.
In a statement issued after the end of Cyprus’ fifth bailout review, the European Commission, the European Central Bank and the International Monetary Fund said that quickly passing foreclosure and insolvency laws is key to getting borrowers to pay off debt as bad loans account for more than half of all loans.
Cyprus’ banks were at the centre of last year’s rescue deal that shocked savers by seizing their deposits in the country’s two biggest lenders.
Finance Minister Harris Georgiades said an overhaul of the current “dysfunctional” foreclosure laws by September 1st is necessary for bailout creditors to release the next batch of rescue money — 350 million euros ($470 million) from the EU and 86 million euros ($115.5 million) from the IMF — later the same month.
Georgiades said existing laws don’t work because it takes over a decade for banks to collect on collateral for soured investments. A senior European Commission official, speaking only on condition of anonymity because he’s not authorized to speak to the media, said a new legal framework now being fine-tuned envisions cutting that time to 1.5 to 2.5 years.
But there has been some resistance to the new law amid concerns it could cause indebted Cypriots to lose their homes. President Nicos Anastasiades personally intervened to clinch a compromise on the bill that incorporates safeguards for people who lost their jobs from also losing their primary homes.
The senior European Commission official said there’s currently much more investor interest in Cyprus than expected. The economy is projected to shrink 4.2 per cent this year but grow 0.4 per cent in 2015.