President Nicos Anastasiades yesterday criticized MPs over a proposal by EDEK to postpone the House Plenary vote on the insolvency framework, originally scheduled for 17 April.

Speaking to reporters on Wednesday, Anastasiades said he was disappointed in the conspiracy theories that have emerged, and said that it is as if we are talking about a bill that relates to political party gain and no one realises that the effort to scrap the legislation, which he said fully secures the rights of vulnerable groups, ends up hurting Cyprus. Anastasiades attacked the notion that a vote by the Plenary could be postponed on the grounds of absent deputies, as it would open the door to endless politicking, and called for “a little more seriousness is required by everyone.”

Repeated postponements in the implementation of the foreclosures bill, linked to the insolvency framework, since its approval in December 2014, have caused delays in the implementation of the Cyprus Memorandum and the disbursement of aid from the Troika. The suspension of the foreclosures bill was scheduled to end on 17 April.

Anastasiades was accused of taking a trip to Athens on the day so as to prevent House of Representatives Speaker Yiannakis Omirou – which will be acting President – from voting and tilting the balance in favour of approval of the legislations. As things stand, according to an informal count of MPs intention, the vote would be tied with 28 MPs on each side. Socialist EDEK responded to what it saw as an unfair move with calls to postpone the House vote until Anastasiades’ return. 

Cyprus will lift on Monday all the capital controls it imposed in 2013 amid a chaotic bailout, President Nicos Anastasiades said on Friday.

"The lifting of the last restrictions marks the final restoration of confidence in our banking system," Anastasiades said during a televised press conference on the economy.

“As a result of the hard work by everybody and the consistency in implementing the obligations we undertook, 24 months after the assumption of the governance, today we can speak with certainty of a course of total reversal of an unprecedented crisis we were called to deal with.

I would like to reiterate that within this period of time, not only did we manage to belie the assessments and predictions referring to a total collapse of the economy, but we managed to avert total collapse and at the same time to restore the international credibility of our country, to stabilize our banking system and we are now in a course of recovery and exit from the Memorandum”.

With determination, we took particularly difficult decisions and we implemented a very difficult, but necessary, programme, without overlooking the social role of the state”, President Anastasiades said.

Cyprus introduced the controls in April 2013 to prevent outflows after Laiki Bank was closed and the Bank of Cyprus seized deposits to recapitalise.

Since then controls have been gradually eased. The last remaining, included in a Finance Ministry decree last month, required authorities' approval for businesses sending large remittances overseas, and individual travelers moving more than €10,000 out of the country.

Asked about the timing of the easing while Greece was in crisis over its own bailout programme, Anastasiades said "We want to hope that there will be no further deepening of the crisis with Greece."

Cypriot banks, he said, had fully severed their links with the Greek banking system following the 2013 crisis.

The President also announced a decision by the Cabinet on Thursday to immediately call for tenders for the implementation of development projects included in the budget, of a value of €200 million, for 2015, mainly concerning major environmental and town planning projects, sewerage and infrastructure projects, as well as projects for the improvement of road infrastructure, as well as the integration of new additional mature projects for immediate implementation of a value of €80 million, which include the upgrading of hospitals, the construction of new health centers, the construction and upgrading of existing education centers, tourist infrastructure, as well as the upgrading of road networks.

He also announced the extension of programmes of the European Investment Bank, a series of measures for the unemployed through nine programmes regarding the subsidy of employment, the gaining of working experience and the training of unemployed people, at a cost of €58 million, and the extension of the period for providing town planning incentives.

Anastasiades said that to achieve speedy implementation of the development projects, carried out through public tenders, and improvement of the entire system, the Cabinet decided a series of measures that speed up the tender process, while at the same time ensuring transparency. To this end, four bills have been prepared, which are before the Law Office of the Republic for legal processing and expected to be submitted for voting to the House of Representatives.

Finally, the President reiterated the Government’s determination to continue implementing policies and actions, which will allow the final return to the markets and to the path of growth, the facing of umemployment, the further support of the vulnerable population groups and the exit from the Memorandum.

“We have proven that we move forward with specific and well-balanced programme, the overcoming of the difficulties is not random, and the measures announced today will not be the last ones”, President Anastasiades concluded.

Info: Dr. George Mountis is Managing Partner of Delfi Partners.

The Central Bank of Cyprus (CBC) started releasing data on the non-performing loans (NPLs) of commercial and cooperative banks in June 2013. NPLs as a percentage of total credit facilities have continued to rise ever since. However, although they rose from 30.6% in June 2013 to almost 51% in November 2014 (latest available data), which corresponds to over €7 billion of additional non-performing debt, NPLs restructuring has been very slow; the percentage of restructured non-performing loans has not exceeded 12% during the aforementioned period (CBC, 2015). 
More to the point, as of late November 2014, only around 11.1% of NPLs – equating to loans worth €3.1 billion – had been restructured. As far as credit facilities to legal entities (mainly corporations) are concerned, the construction industry displays the highest restructuring rate; by the end of November, 25.3% of the sector’s NPLs had been restructured. It should be noted that construction is responsible for the highest percentage of NPLs with 78.7% of the loans granted to corporations active in the industry not being serviced. NPLs to developers and contractors that have been restructured account for over €1.4 billion, representing more than 46% of the total NPLs restructured. High restructuring rates have also been recorded in the transport and health sectors, exceeding 30% in both cases. Restructured NPLs in the real estate and tourism (accommodation & food services) industries stand at 15.6% and 16.1% respectively. 
As for credit facilities to private individuals, of which more than half (51.7%) are classified as non-performing, the average restructuring rate is 8.3% (9.9% for housing and 6.6% for consumer loans). Of some €4.3 billion worth of loans granted for the purchase or construction of owner-occupied immovable property that are not being serviced, only €378 milllion had been restructured by the end of November 2014. 
“Loan restructuring” refers mainly to the extension of repayment periods, and/or a ‘temporary’ decrease the monthly instalment. In some cases, restructuring involves lower interest rates or waiving part of the capital and/or the interest due. Moreover, the complex procedures that need to be followed in order to proceed with loan restructuring are considered by many to be an obstacle to the effort and, for this reason, various stakeholders have already submitted a request to the CBC asking for the simplification of the process. Finally, the approval of a bill for property divestment and an appropriate insolvency framework are also considered as critical for the acceleration of restructuring rates in 2015. 
Banks could secure the collection of significant parts of loans that are currently not being serviced (and, therefore, increase their revenue and liquidity), by managing their NPLs more efficiently. A more effective management approach comprises the restructuring of loans that are classified as non-performing but are still considered viable. On the other hand, there are no obvious benefits to delaying the restructuring process; on the contrary, the danger of a new crisis in the Cypriot banking system caused by the accumulation of huge amounts of NPLs cannot be ignored. NPLs act as an obstacle to the recovery of the economy. 
The ‘new’ Bank of Cyprus (and the other recapitalised local banks) can contribute to growth by granting low interest loans and proposing ‘smart’ NPL restructuring solutions. Cyprus’ level of NPLs is the highest in Europe. For the economy to return to and sustain growth, household and corporate debt needs to be significantly reduced. 
Banks should promptly proceed with writing-off default interest and surcharges on overdue loans, including interest on capital that debtors will never be able to repay, mainly because of previous usurious charges imposed by the financial institutions. A few months ago, six years after its banks went bankrupt, Iceland proceeded with a haircut of household debt by subtracting value of (mainly) housing loans. It is estimated that this initiative will directly benefit around 85% of households and that the write-offs will near €25.000 per debtor. It is important to note that Icelandic households and corporations never reached the levels of lending of their Cypriot counterparts. 
Finally, although deposit interest rates have been significantly de-escalated, existing and new lending rates remain at artificially high levels and have not been proportionally reduced. ‘Fuelling’ businesses with new but notably cheaper money is a necessary move to reboot the economy. The Government should search for a solution for the huge debt amassed by households and businesses and consider (under specific terms and conditions and having calculated its impact on the banks) a ‘private debt relief’ programme.

Courtesy of Gold News

Two years on from Cyprus’ now infamous bail-in – an event which shook the island’s economic foundation to its core – the future appears brighter, with significant progress having been secured through the collective effort for recovery. Despite consecutive positive evaluations of the country’s implementation of its economic adjustment programme, however, substantial risks to this recover still remain. 

Speaking exclusively to Gold News, three Cyprus economists underline that these threats, if left unaddressed, may yet prove to ruin the island’s prospects and leave its future in the balance once again. 

“Despite the tragic events of March 2013, Cyprus’ economy has showed resilience and the country was able to return back to stability and regain some of the lost confidence from international markets and investors rather quickly, which is necessary for a return to growth and gradual reduction of unemployment,” says George Theocharides, Associate Professor of Finance at the Cyprus International Institute of Management (CIIM). 

This was an outcome of a number of factors, he explains, including a recession much milder than expected, stabilizing unemployment, achieving sustainable public debt levels, diminishing budget deficits, and securing a primary surplus well before onlookers had predicted. 

This was then reflected in five successful Troika reviews, consecutive credit rating upgrades by all three international rating agencies, a substantial reduction of the yields on government bonds, and the influx of foreign direct investment which recapitalized the local banking sector. 

However, “many risks still remain that can easily put us off track and stop us from returning to the coveted growth,” Theocharides cautions.

“A year ago I used to describe the Cyprus economy as out of intensive care but not yet out of the hospital. Now I would describe it as out of the hospital but still walking with a limp and still requiring treatment,” Fiona Mullen, Director of Sapienta Economics Ltd tells Gold.

Although Cyprus has clearly come a long way since March 2013 and the economy did not decline as fast as expected, this has much to do with the small size of the economy, she explains.

“When 95% of your businesses have fewer than 10 employees, as Cyprus does, it is easier to cut costs rapidly and remain in business. I cannot think of any friends who have not taken a pay cut since 2013.” 

Such remuneration reductions are painful – “of course” – however this is one reason why unemployment did not rise so rapidly, together with repatriation (or emigration elsewhere) of EU citizens from Romania and Bulgaria, as well as the job-support schemes managed by the Human Resources Development Authority. 

For the future, however, Mullen worries about how we may move from a "smaller decline" to positive economic and employment growth. 

The economy will not return to growth until we see an increase in confidence, she underlines. One precondition of this confidence is a return to the financial markets – “and as we all know, that requires implementation of the foreclosure and insolvency laws.” 

“As we all know, the progress of our adjustment programme is on hold since last summer (that was the last successful Troika review) mainly because of the successive extensions by the parliament of the suspension of the foreclosure law,” Theocharides explains.

Parliament must concurrently pass a package of some five insolvency bills, he adds, explaining that this delay is costing Cyprus greatly, and puts its economy in danger. 

We are also facing two main external risks that can have a big impact on our economy and the prospects for 2015, the first of which, he says, is the negative impact from the recession that the Russian economy is facing.

“The collapsing Russian rouble will have a big impact on both tourism and professional services this year and we do not have anything else to offset that. It turns out that we barely have enough gas to sell to Egypt, let alone other markets,” Mullen concurs.

Secondly, Theocharides continues, Cyprus is dealing with the issue of the Greek economic uncertainty, which will inevitably have a negative impact on the island, despite the separation of the countries’ respective banking sectors. 

“Although it’s difficult to protect our economy from the external risks, what we can do at least is make sure that we solve our internal problems that exist right now that put an obstacle to any sort of future growth,” he stresses.

Ultimately, to get back to growth, elected deputies need to work together for the good of the country, instead of “playing micro-politics,” says Mullen. This has only given them a bad reputation and has damaged the economy in the process, something which has not gone unnoticed, notes Alexander Apostolides, Chairman of European University Cyprus’ Department of Accounting, Finance and Economics.

“The Economist one mocked Cyprus that it "never misses an opportunity to miss an opportunity". Sadly the events of the recent two years have once again confirmed the dictum,” he quips.

The bail-in, if anything else, presented a golden opportunity to change issues that were dragging the Cyprus economy down. From an inadequate foreclosure bill, to the weaknesses in checks and balances in independent institutions such as the central bank, the momentum of change after March 2012 was lost through a combination of a reluctance by governance to tackle the really hard issues (such as civil service reform and privatization), Apostolides tells Gold.

“On issues where the government did try to push important reforms (foreclosures and extension of shopping hours) the recalcitrance of the opposition to pass them through parliament punished the economy, just as the fallout from the Ukraine crisis was becoming evident in Cyprus.”

“I feel that the government could have a successful second half of its term only if it becomes braver about changing the ills that trouble Cypriots, focusing on opening up closed professions to competition and reshape the civil service to the interest of the citizens,” he concludes.

The Cyprus House of Representatives decided on Thursday, in a unanimous vote, to suspend until 2 April the implementation of a foreclosures law that is a key condition of the country’s EU/IMF bailout, spelling a further hold-up in the island taking part in the European Central Bank's €1.1 trillion bond-buying scheme. This is the fourth suspension of the foreclosures legislation, since September 2014.

MPs say the law should be adopted simultaneously with an insolvency framework, outlining protection mechanisms for primary residences and third parties who guaranteed mortgages. The insolvency framework is still being reviewed by the House of Representatives.

Cyprus's lenders say full adoption of a foreclosures framework to allow banks to wrestle down a mountain of non-performing loans is a 'prior action' required before any further disbursement of aid, and a formal assessment on Cyprus's progress.

Cypriot officials say ECB purchases of Cypriot government debt would help bring down yields and assist Cyprus in its return to capital markets. They have said that the ECB could buy up to €500 million in Cypriot sovereign bonds under the QE programme, which began this month.

The foreclosures law was passed late last year on the provision that it would only come into effect when the insolvency framework was adopted.

Furthermore, the House of Representatives suspended indefinitely foreclosures of mortgaged property bought by borrowers who exposed to insolvent land developers. Many borrowers are trapped because they purchased properties without taking title deeds, as developers cannot transfer ownership because they are insolvent. MPs fear that the banks may seize the properties pledged as collateral by insolvent developers despite that the loans of the borrowers that bought the houses are being serviced.

Ongoing explorations of – and deliberations regarding – Cyprus’ hydrocarbon reserves are set to turn to commercial exploitation as Noble Energy prepares to declare the commercial viability of block 12 of the island’s Exclusive Economic Zone (EEZ).
The US-based energy giant, in cooperation with Delek drilling, holds the rights to the exploration of block 12, known as the ‘Aphrodite’ field.
Its evaluation of the viability of the field is expected to be completed and presented to Governmental officials in the coming weeks, according to Minister of Energy Yiorgos Lakkotrypis.
Following this presentation, Noble will submit a plan for the development of the Aphrodite reserve, he said, adding that both events will hold significance for the future of the country’s budding energy sector.
“These two events are very important for Cyprus, because it is the first time that we will move from exploration to hydrocarbon development and exploitation as a country,” Lakkotrypis commented.
There is, however, a long way to go, “especially as regards commercial agreements that need to be made.” Nevertheless, the Minister continued, these developments remain of great importance for the country at large.
“Declaring commerciality sends the message to foreign buyers that we have natural gas for sale. This means that it can be for export or used in Cyprus, or a combination, which is our intention.”
Estimates for the amount of natural gas in the Aphrodite reservoir have been increased by 14 billion cubic meters (BCM). The new estimates indicate that the field holds some 127 BCM of gas, up from 113 BCM, and nine million barrels of condensate, up from 8.1 million. 
The estimated number of barrels of condensate (a liquid by-product of natural gas production that may be sold separately) has also been raised.

The research hub of Delfi Parters & Co has published its latest in-depth report on the most recent developments within Cyprus’ recovering banking sector. 
Focusing on the recent announcements made by many major Cypriot banks regarding their intention to reduce interest rates, the consulting firm analyses the effects this is expected to have on the progress of the economy at large.

“Traditionally, Cypriot banks used a high depositor interest rate compared to the rest of the Eurozone, in an effort to lure “hot money” from hedge funds and individual investors from overseas,” the report begins.

This had a knock-on effect on the domestic market, raising the cost of lending for businesses and households alike, says Delfi Parters. Following the banking crisis, the high depositor’s interest rate, coupled with the high risk of non-performing loans kept lending rates considerably higher than their Eurozone counterparts, placing a significant burden on the Cypriot economy.

Following the Central Bank’s decision for a 1% reduction in its base interest rate in Mid- February, all major Cypriot banks responded, lowering interest rates by 1% effective on the 1st of March 2014. 

Hellenic Bank, announced a reduction of 1%, as of March 1st, applicable to all loans connected to the bank’s basic interest rate, both serviced and non-performing. The 1% reduction is also applicable to all credit card loans. Bank of Cyprus also announced a 1% reduction on its basic interest rate, effective March 1st. The interest rate is applicable to all loans linked to the basic interest rate. Credit card loans will be reduced even further, by 2%. Non-performing loans will enjoy a 2% interest rate reduction once they become performing. Alpha bank publicized a 1.7% drop on all new consumer loans and new loans for small and large businesses. It also announced a reduction on all rates of interest on arrears for all its current loans, equivalent to a 1.2% interest rate reduction. 

Coop joined the commercial banks in announcing cuts across the full range of its performing loans. Housing loans were reduced by 1%, which, combined with the 1% reduction that was announced in early February, brings minimum interest rate down to 2.75%. Business loans saw a 2% reduction, with a minimum interest rate of 3%. Non-performing loans will also see a 0.5% interest rate decrease as soon as they are restructured and a further 0.5% decrease after 6 months of the restructuring provided that all the restructuring conditions were met during this period.

“The reductions in lending interest rates bring some much welcomed breathing room for households and businesses alike,” Delfi Partners explains, “facilitating the repayment of existing loans.” Indeed, the significant burden placed on the economy by the financial sector, through the high percentage of Non-performing Loans as well as the financial reforms that significantly restricted access to credit, was very rigid to respond to interest rate decreases in the wider Eurozone area. 

The Central Bank of Cyprus placed significant pressure on commercial banks for a reduction in lending rates and, by lowering the ceiling by 1 percentage point on its base interest rate, steering the commercial banks in the right direction while thankfully avoiding excessive legislative measures that would bring more harm than good, the firm notes.

Although the cost of credit in Cyprus is still amongst the highest in the Eurozone, the recent cuts in interest rates have brought the cost of credit closer to its Eurozone counterpart and will play a significant role in facilitating the economic recovery of our country, Delfi Partners concludes, both in terms of the sustainability of existing lending facilities and facilitating new business growth.

The European Central Bank’s quantitative easing programme will be launched on March 9, with the purchase of some €1 trillion in euro area government bonds.
“Following up on our decisions of 22 January 2015, we will, on 9 March 2015, start purchasing euro-denominated public sector securities in the secondary market,” Mario Draghi, President of the European Central Bank said at a press conference following the ECB Governing Council meeting in Nicosia, held on Thursday. 
Disclosing several details regarding the programme, Draghi revealed that the ECB will purchase the bonds at a rate of €60 billion per month.
He also hinted that QE may continue beyond the September 2016 deadline, if necessary.
“The [bond purchasing is] intended to be carried out until the end of September 2016 and will, in any case, be conducted until we see a sustained adjustment in the path of inflation which is consistent with our aim of achieving inflation rates below, but close to, 2% over the medium term,” he said.
Draghi pointed out that the ECB QE programme will be more effective if coupled with a continued fiscal reform by the euro area governments.
“To be fully effective… the monetary policy measures that we decided in January but also the previous ones [must] first and foremost need strong structural reforms. Otherwise we can provide as much credit as possible, we can refinance the banking system so they can lend as much money with the lowest interest rates but if the structural conditions are not in place there will be little incentive to use this credit,” Draghi concluded.

The fifth and final bill of the insolvency framework – a legislative package whose completion is expected to see the full implementation of the island’s foreclosures law – has been approved by the House of Representatives, following its submission to Cabinet by the Ministry of Finance on March 3.

The enforcement of the foreclosures legislation is a crucial component of Cyprus’ economic adjustment programme agreement with its international lenders, acting as a precondition for the sixth tranche of international funding of €436 million.

 
The further suspension of this package would hamper Cyprus’ commendable fiscal progress thus far and impede further efforts for growth, the island’s Finance Minister, Harris Georgiades, has repeatedly explained.

The rate of unemployment in Cyprus recorded a modest decrease in January 2015, falling to 16.1% from 16.4% the previous month.

Though a positive development, the figure still represents a higher proportion of unemployed persons in relation to the total working population than the EU average of 15.7%. 

According to Eurostat, the statistical office of the EU, the euro area seasonally-adjusted unemployment rate was 11.2% in January 2015, down from 11.3% in December 20144. This is the lowest rate recorded in the area since April 2012.

The EU28 unemployment rate, meanwhile, was noted at 9.8% in January 2015, down from 9.9% in December 2014.

Among the Member States, the lowest rates of unemployment in January 2015 were recorded in Germany, with 4.7%, and Austria, with 4.8%. The highest were noted in Greece, with 25.8% in November 2014, and Spain, with 23.4%. 

Compared with a year ago, the unemployment rate in January 2015 fell in twenty-four Member States, remained stable in Belgium and increased in Cyprus, Finland and France.

The largest decreases were registered in Spain, Estonia and Ireland.

Courtesy of GOLD NEWS