Both labour costs and monthly wages increased throughout the Eurozone, data released by the European Union’s statistics agency yesterday revealed, indicating that inflationary pressures in the eurozone may be set to pick up.

Figures published by Eurostat indicated that the region’s job vacancy rate was unchanged at 1.7%, suggesting that the unemployment rate is unlikely to fall significantly in coming months. 

Eurostat said workers' pay was 1.2% higher in the second quarter than in the same period of 2013, having risen by 1.0% in the three months to March. 

Total labor costs - which include tax and other costs to employers - rose 1.2%, having increased by 0.6% in the previous period.

“The pickup in wages and total labor costs will give some encouragement to members of the European Central Bank's governing council, since it suggests underlying inflationary pressures may be on the rise, albeit slowly,” MarketWatch reports. 

The eurozone's annual rate of inflation fell to 0.3% in August from 0.4% in July, taking it further below the ECB's target of just below 2%.

A number of eurozone members recorded wage declines during the second quarter: Cyprus recorded the largest decrease, with wages down 4.5%, though there were also falls in Ireland, Italy and the Netherlands. 

Wages rose 1.6% in Germany, and slightly less rapidly in Spain.

“That suggests that the eurozone continues to rebalance through different rates of wage growth. Deprived of the ability to devalue their currency, troubled eurozone members have tried to regain competitiveness lost in the years running up to the financial crisis by cutting their labor costs relative to stronger northern European economies, a process known as internal devaluation,” comments MarketWatch.

Despite the House of Representatives having passed the bills by a majority on Saturday, September 6, Anastasiades last week referred four pieces of legislation to the Supreme Court, deeming them unconstitutional.

The Cyprus Mail reports that, furthermore, the President has sent back two other related items to Parliament. Collectively, the six items comprise clauses viewed as being incommensurate with the aim of accelerating foreclosures proceedings, critical in allowing banks to recover non-performing loans amounting to billions of euros.

At a meeting of Eurozone Finance Ministers – held on Friday September 12 – it was agreed that Cyprus would not be eligible for the next tranche of financial assistance, pending reconciliation of the six contentious pieces of legislation.

The next deadline that the Government must contend with is the scheduled Eurogroup meeting of October 13. Whilst stressing the severity of the situation, Finance Minister Harris Georgiades has nevertheless assured the public that until the next tranche is released the island is financially sound and is not at risk of default.

Government sources have explained that upon resolving the foreclosures issue, Cyprus will have only two more major hurdles to overcome: the privatisation of semi-government bodies and the adoption of the NHS. 

Cyprus parties continue deliberations ahead of a meeting of the Parliamentary Committees of Financial and Budgetary Affairs, and Internal Affairs, due to be held today, Tuesday, in a bid to converge opinions on amendments to the crucial bill on foreclosures of mortgaged properties, set as a precondition for the next disbursement of Cyprus’ €10 billion bailout.

The Secretariats of the two Committees are codifying the proposed amendments to be discussed by the parties at a closed meeting, a few days before the vote in the House`s plenary on Friday.

Party members told the Cyprus News Agency that, so far, there are 13 common amendments but the final agreement will be shaped during tomorrow’s meeting, whereas the parties will table their individual amendments if they believe that their positions are not included in the common proposals.

The same sources noted that a new meeting of the two committees with the Ministers of Finance and the Interior will be possibly held on Wednesday to discuss the agreed amendments.

Meanwhile Finance Minister Harris Georgiades continues talks with Cyprus’ lenders on the amendments of the crucial bill.

Half the businesses in Cyprus are failing to repay their loans, with the construction sector being the worst offender as non-performing loans reached 72 percent in June according to the Central Bank.

NON-PERFORMING LOANS (NPLs) in the Cyprus banking system swelled by €317 million at the end of June 2014 compared with the previous month, despite a reduction in the total amount of loans, according to data released by the Central Bank of Cyprus on Monday.

At the end of June NPLs amounted to €27.81 billion or 46.5% of total loans amounting to €59.80 billion, compared with 45.55% or €27.49 billion on 31 May 2014, when total loans amounted to €60.34 billion.

According to the latest figures released by the Central Bank, NPLs in the banking sector in June 2014 amounted to €20.78 billion or 44.65% of total loans amounting to €46.54 billion, compared with €20.51 billion or 44.59% in the previous month. At the end of June, NPLs in the Cooperative Sector amounted to €13.26 billion or 53.02% of the total loans amounting to €7.03 billion, compared with €6.98 billion, or 52.62% in May 2014.

Commercial bank loans 

In the Cyprus commercial banks, corporate loans stood at €29.15 billion in June, of which 49.62% were classified as non-performing, compared with 48.31% in the previous month.

Loans to individuals and households rose to €13.96 billion in June, of which 45.22% were non-performing, compared with 44.70% in the previous month. NPLs in the construction sector jumped to 72.05% of a total of €7.15 billion, compared to 70.12% in May 2014 when the total loans were €7.19 billion.

NPLs in real estate amounted to 54.54% of a total of €4.19 billion, compared with 52.52% in the previous month.

Cooperative sector loans 

The majority of loans in the Cooperative sector were granted to individuals and households. These amounted to €10.38 billion in June, of which 55.10% were non-performing, compared to 54.82% in May 2014. Regarding loans for the purchase of real estate, the total loan facilities amounted to €5.11 billion in June, of which 46.77% were classified as non-performing, compared with 46.55% in the previous month. Consumer loans in June stood at €4.29 billion, of which 62.93% were non-performing, compared to 62.64% in May 2014.

Foreclosures bill 

Meanwhile it is anticipated that a revised version of the contentious foreclosures bill will be placed before an extraordinary plenary session of parliament for voting this Friday together with a number of other pieces of legislation. Costas Melas, the head of the association for the protection of borrowers, has called lawmakers to pass the bill saying that “The consequences from its implementation and how they can be tackled is another matter” following a meeting with President Anastasiades.

Another step has been taken in the Government’s quest to ensure the passing of the mandatory foreclosures legislation; a prerequisite for the disbursement of the next tranche of the island’s €10 billion financial assistance programme.

The Council of Ministers has approved new bills for the protection of troubled borrowers who have pledged primary residences as collateral, the Cyprus News Agency reports.

The decision, made Wednesday, has come in response to a flurry of objections to the bill on foreclosures of mortgaged properties, which, should it not be passed, risks endangering the viability of Cyprus’ economic adjustment programme.

Government Spokesman Nicos Christodoulides announced that these bills concern the abolition of banking privileges for abusive financial services clauses, the amendment of the interest rate liberalisation law so that it will be applied to all existing contracts and credit facilities, the abolition of banks’ right to unilaterally increase the interest rate margin of credit facilities, and to inform borrowers and their guarantors on the changes of the base rate and the time of rate payment.

Now, following the Cabinet’s decisions, banks will be obliged to publish the interest rate calculation method, while the Central Bank of Cyprus (CBC) has the capacity to impose administrative fines and to penalise banks that do not comply with the new provisions.

These decisions have been taken in a bid to convince parliamentary parties to approve a bill on foreclosures of mortgage properties, which should be approved and put into force by the end of August. The latter is a precondition for the disbursement of the next tranche of the island’s €10 billion financial assistance programme. 

Some political parties fear that if approved the law on foreclosures will pave the way for a wave of repossessions of primary residences, including those belonging to vulnerable households that have suffered at the hands of the financial crisis.

Christodoulides confirmed that President Nicos Anastasiades intends on sending a letter to parliamentary parties, briefing them on the new decisions, which will, furthermore, be discussed come Friday when a Council of political leaders will convene.

The Government has also decided to include in the law a provision allowing borrowers to appeal either to the CBC’s Governor or the Attorney-General over the violation of the CBC’s Arrears Management Directive, or any other of the CBC directives on loan restructuring.

“If the Attorney-General ascertains a violation or that the provisions of the Code of Conduct have not been implemented, then the foreclosure process will be suspended until the conclusion of the legal process,” Christodoulides explained.

Cyprus’ political parties convened yesterday to continue fervent discussions regarding the controversial drafted foreclosures law.

All parties, excluding ruling Democratic Rally, expressed their disapproval of the proposed foreclosures legislation and requested that the Government renegotiate with its Troika of international lenders regarding the specifics of the bill.

At the joint session of the Parliamentary Committees on Financial and Budgetary Affairs and Internal Affairs however, Interior Minister Socratis Hasikos informed committee members of the Troika’s rejection of suggested legislation amendments, submitted by parliamentary parties, ruling out further negotiation efforts.

Finance Minister Harris Georgiades, who also participated in the meeting, expressed his support of the proposed bill, further suggested that foreclosures proceed for various property types.

“Foreclosures should not proceed only for villas. They should proceed also for an apartment for which the borrower has not paid a single bank installment since it was bought”, he said, adding that “tolerance is unfair” to depositors who continue to pay their dues despite financial challenges.

“The key to addressing the accumulated debt is the restructuring of loans”, Georgiades noted, adding that the Cabinet has approved an outline of amendments to existing laws in the form of the insolvency framework which refers to the restructuring of loans, aimed at giving a second chance to borrowers that are struggling to pay their debts.

This framework must contain the tools needed for the banks to recover loans from debtors that do not cooperate or debtors with unsustainable loans, he said.

Hasikos, meanwhile, commented that the foreclosures legislation is not aimed at extensive foreclosures on mortgaged properties, but instead at correcting the current law. The bill aims at exerting pressure on both the debtor and the bank to negotiate the restructuring of loans, he explained.

The Government has drafted a scheme under which the state - through the Cyprus Land Development Corporation - will help those who cannot pay their loans and have exhausted all available options, to keep their primary residence, either by buying their home or by paying the interest on their loan, which the debtor later would have to pay back to the state.

Attorney General Costas Clerides noted that under the legislation, the debtor has the right to participate in the foreclosure process by appointing an appraiser.

Central Bank Governor Chrystalla Georghadji stated that non-performing loans are the biggest problem of the four banks in Cyprus that will undergo the 2014 EU-wide stress tests carried out by the European Banking Authority.

Georghadji said that there are borrowers who cannot pay their bank instalments and others who “naively believe that they punish the banks by not paying”.

Cyprus’ Troika of international lenders – comprising the European Commission, European Central Bank and International Monetary Fund – has stipulated that the bill be approved prior to the upcoming Eurogroup meeting of mid-September. 

The Cyprus Scientific & Technical Chamber (ETEK) has demanded that the Land Registry publish the criteria it has used to determine immovable property values for taxation purposes, explaining that it would allow citizens to better understand the appraisal method, thus reducing objections to the relevant tax. 

The local media reports the Chamber’s Chairman, Stelios Achniotis, as arguing that the state is obliged to provide transparency to the public and that all data used by the Land Registry in reappraising immovable property, adjusting them to 2013 prices, should be made public. 

“It is a fundamental right of citizens, and a fundamental obligation by the state,” he said. 

“We cannot fathom an appraisal methodology based on specific criteria and hard data that is selectively available.” 

In an earlier statement, the Chamber said that such disclosure would facilitate the application of immovable property tax (IPT) as it would allow citizens to be better informed and understand the appraisal method. “Educating the public will directly result in fewer objections to the bare minimum, which will in turn help the Land Registry deal with objections more effectively,” ETEK said. 

THE CABINET approved on Wednesday the amendments to the bill that were considered after pressure from all stakeholders, including political parties, property developers and home-owners, who wanted certain safeguards to be introduced, despite the Troika’s insistence of harsher measures to ensure than banks could recover assets or auction properties to pay down non-performing loans.

The primary home (ie. the owner is proven to be living there permanently) has been safeguarded only when the owner can prove lack of income or any other asset, thus ensuring low-income families do not lose the roof over their heads.

The new bill says that lenders can auction or sell mortgaged properties without the involvement of state services, even though the two parties may also resort to the Land Surveys Department, that so far had the exclusive right to sell or auction. 

The bill’s provisions include: 

* The sale will begin 90 days after the last due payment (up from the present 30 days), during which time the property owner may seek to restructure the debt or ask for mediation, or even resort to the courts over credit facility disputes, during which time the foreclosure process is suspended. After the 90 days, the lender must notify the owner to settle the outstanding amount or foreclose, with a further 30 days allowed to dispute the action. If the property owner does not conform, the lender will notify of a date of auction, at least 30 days advance of that date, when the owner may once again dispute the final action in court if the terms of the mortgage have been violated, the owner was not notified properly, the notice was issued prior to the expiration of the due date of last payment, or if there is any other outstanding court case. 

* The lender must give ten days’ notice to appoint a property valuer to assess the sale price of the mortgaged property and then appoint a second valuer. The two, and independent of each other, must then deliver their valuation to the property owner and lender within 30 days. If the difference between the two does not exceed 25%, then the sale value is determined by the average of the two. If the difference exceeds 25% then, within five days, the lender must ask the Technical Chamber ETEK to appoint a third valuer who, within a further 30 days, must submit his own assessment. The sale price will be the average of the two median prices of the three valuations. 

*The initial sale is conducted by the lender only by auction which determines the reserve price as 80% of the property’s value and no less. If there is no interest, the lender may try again for up to three months by auction or direct sale, with the reserve price remaining at no less than 80% of the property’s value. If the property remains unsold, only then can the reserve price drop to 50% of the fair value for a period of nine months. The cycle may be repeated, but retaining a reserve price of no less than 50% of the fair value. 

*The lender may buy the mortgaged property only after 12 months from the start of foreclosure. 

*The whole process may be repeated every year until the property is sold. 

* If the mortgaged property is the primary home, then the new bill will be applicable after January 1, 2015, when the credibility (credit ratings) law comes into force, which also provides for the protection of the primary home and a quick resolve of outstanding debts only in the case when the owner is proven not to have any income or other assets. 

By Nigel Howarth

Some details of the agreement reached between the Cyprus government and the Troika of international lenders to ease the procedures for property repossessions have been leaked to the media.

ALTHOUGH the Cyprus government remains tight-lipped about details of the agreement reached with the troika easing the procedures for property foreclosures, some details have been leaked to the media.

According to information we have received, which we cannot confirm at this time, the key provisions of the law required to make repossessions more effective and less time-consuming include: An assessment of the value of the property in question will be made by the bank and its owner(s).

If there is a discrepancy between the two valuations a further valuation will be made by an independent third-party appraiser. The property will be auctioned with a starting price of 80% of the its value as assessed by the above valuation procedure. The price will remain confidential and its publication will constitute a criminal offence.

The selling price of the property will remain valid for a period of three months, after which it will be reduced to 50% of its valuation. If the property has not been sold within a year, its value will be re-assessed, but at no time will its selling price be dropped below 50% of its valuation.

The repossessions bill and a second bill on the subject of insolvency are designed to address the issue of non-performing loans, which are currently hovering around 50% of all outstanding loans. European Commission officials have warned that the repossessions law has to be approved by Parliament before any new aid is distributed.

American investors have expressed interest in leasing and operating the Ledra Palace Hotel in the buffer zone in Nicosia, Archbishop Chrysostomos has revealed.

The Cyprus Mail reports that the Archbishop has confirmed that Ledra Palace Hotel – in which the Church has a majority stake – is one of a number of potential investments being explored by American business professionals

Chrysostomos said that during the course of meetings here with American professionals last week – where the latter expressed interest in purchasing coastal land tracts owned by the Church with a view to building hotels – the possibility of investing in Ledra Palace was also discussed.

Chrysostomos stressed that the Church has no intention of selling its stake in the historic hotel, which has become a Nicosia landmark.

Rather, the hotel would be leased long-term, with the investors putting up the money to renovate it. The cost of renovation has been estimated at €10 million to €15 million, the top cleric said. Alternatively, the Church and the foreign investors could run the hotel as a joint venture.

Chrysostomos said the Church’s aim is to prevent the now decrepit building from falling into ruin.

“We want to maintain it so that it can operate as soon as possible,” he added.

The Ledra Palace was, up until 1974, one of the largest and most glamorous hotels of the capital. It was designed by the German-Jewish architect Benjamin Günsberg. It originally had 94 bedrooms and 150 beds, officially rated as deluxe.