Nikos Christodoulides: No to NPL measures that undermine the payment culture

The President of the Republic Nikos Christodoulides has sent a clear message that measures that would undermine the culture of payments, hinder banks' efforts to reduce Non-Performing Loans and discourage borrowers from participating in loan restructuring should not be taken, also emphasising that the avoidance of such measures is an important factor for the credibility of Cyprus.

In an exclusive interview about the economy with InBusinessNews, President Christodoulides declares that the approval of proposals that weaken the divestment framework would entail a series of negative ramifications.

And he explains, in this regard, that:

First: It shifts the solving of the problem into a never-ending cycle.

Second: It leads to stagnation in the amount of Non-Performing Loans and private debt.

Third: It leads to locking households and businesses out of economic activity.

Fourth: It leads to further erosion of the development prospects of the Cypriot economy.

Fifth: It creates favourable conditions for strategic and defaulters.

Nikos Christodoulides, in his interview with InBusinessNews, refers to the measures taken by the Government to deal with the effects of inflationary pressures on households and businesses, pointing out that very high inflation is one of the main challenges, not only locally level, but internationally.

"I would like to repeat", he emphasises, "that any support will be carried out in a targeted way, so that those most in need benefit and at the same time we do not risk our public finances."

In particular, with regard to businesses, the President of the Republic underlines that due to the increased financing costs they have to face, interest from the increased interest rates to deal with inflation, one of the main priorities of the Government is the establishment of the Business Development Agency.

Delimiting the socio-economic philosophy of the Government, Nikos Christodoulides emphasises the need for fiscal discipline, which with a parallel human-centred approach, will achieve expansion of the productive base of the economy, utilising research, innovation, and technology and above all, the country’s valuable human resources.

Below is the first part of the interview of the President of the Republic Nikos Christodoulides with InBusinessNews:

From the first day of your election, you talked about the new era. For many, it is a theoretical concept and quite general. What exactly does it include and how will the citizen of Cyprus see a difference in his daily life?

Our Government has already implemented an ambitious governance programme with the human being at the centre of our policies, the average citizen and the problems and challenges he faces in his daily life.

The recent consecutive crises have once again highlighted the need to shield the economy, but also the need to preserve the development path and to support the most vulnerable groups of the population in a targeted manner.

Continuing to operate with fiscal discipline and through a human-centred approach, we aim to expand the productive base of the economy, utilising research, innovation, and technology and above all, the remarkable human resources of our country, which I consider to be our most important advantage.

Having mentioned the above, as a Government, we adopt the long-term strategy Vision 2035, supported by the flagship public investment programmes "Cyprus Tomorrow" and THALEA 2021-2027, the total amount of which amounts to approximately €4 billion.

I have identified in my experience as a technocrat, a perennial weakness in the management of important reform projects and my aim is to improve the state machine in this field.

The new era for the country can be achieved through the emphasis on rapidly cultivating a productive investment environment

Part of the whole effort is the ability of the central administration to intervene effectively to help the implementation of specific actions and priority reforms, on issues such as e-government, energy, anti-corruption, civil service reform and illegal immigration.

Related to the above the creation for the first time of a Government Project Support Secretariat at the Presidency of the Republic is in its final stages.

I would also like to note that it has sometimes been assumed that reforms necessarily come with collateral social costs and that the state is unable to intervene effectively to spread the benefits of progress in society.

I do not agree with this approach, believing that the new era for the country can be achieved through an emphasis on the rapid cultivation of a productive investment environment, while introducing policies that will ensure maximum benefits to the citizens of Cyprus.

Measures against the high cost of living

It is a fact that you came to the reins of the Government, at a time when the international economic firmament was characterised by a series of challenges, culminating in high inflationary pressures. Are the measures taken by your Government to support the citizens sufficient and substantial? Especially for young couples, as well as vulnerable groups, where the biggest issues arise…

It is indeed a fact that we took over the governance of the country under particularly difficult economic conditions, on the one hand coming out of the coronavirus pandemic and the problems it created, and on the other hand the challenges we continue to face due to Russia's invasion of Ukraine.

Very high inflation is one of the main challenges, not only locally, but internationally. The Government recognises the negative impact that inflation has on households and businesses and has implemented measures to mitigate the impact of rising prices without jeopardising fiscal discipline.

At the same time, I would like to point out that gradually the inflation levels in Cyprus have decreased and are expected to normalise further in the future, while certainly not ignoring the existing risks of further deterioration.

Measures to mitigate the impact of rising prices without jeopardising fiscal discipline

Weighing all these factors, we decided to abolish specific horizontal support measures and implement targeted measures for vulnerable groups, as for example in relation to the electricity subsidy. The EU itself has repeatedly stressed that any support provided to mitigate the effects of inflation should be targeted.

We also decided to reduce the VAT for certain essential products on the basis of a recent relevant Directive of the European Commission.

In the same direction, the decision of the Council of Ministers to amend the Scheme for the production of electricity from Renewable Energy Sources, which introduces the virtual netting of accounts, contributing to the efforts for a faster transition to the green economy and independence from conventional energy.

Vulnerable borrowers

Given the rise in interest rates, what role do banks play and what are the government's safeguards to protect vulnerable borrowers?

It is a fact that in the difficult economic conditions we are experiencing, the support of vulnerable borrowers and especially those who have demonstrated consistency with their obligations, is our priority.

To help vulnerable households with a mortgage on their first home, three government plans have already been drawn up (ESTIA, OIKIA, Central Agency for the Equitable Distribution of Burdens Plans) with the participation of only approximately 50-60% of the applicable beneficiaries.

The entire framework for the protection of vulnerable groups is strengthened with the approval by the Council of Ministers of the Mortgage to Rent Scheme, which will be implemented soon.

Need to maintain a responsible attitude and mutual understanding between the parties involved, banks and borrowers

With this Scheme, a fair and definitive solution is given to the vulnerable groups of the population who are unable to service their loan with a principal residence mortgage worth up to €250,000 at market prices and provides the opportunity for them to maintain possession of their principal residence.

The Plan definitively regulates the obligations of the non-viable borrowers of ESTIA and OIKIA, avoiding the prospect of divestment, as their limited resources do not allow any restructuring. The new scheme could potentially be the solution for 2,500 main dwellings.

I referred to the actions that we plan and support as a Government, but with regard to such a critical function of the economy, it is also important to refer to the need to maintain a responsible attitude and mutual understanding between those involved, banks and borrowers.

The first messages, following the intervention of the Government, are positive, as the Cypriot commercial banks, as well as (the Cyprus Asset Management Company Ltd (KEDIPES, have already started publishing plans to support their customers, through a reduction in lending rates to support borrowers, while at the same time they have also announced new deposit products.

Right framework for divestitures

Despite all this, the issue of divestitures remains a hot topic of great debate. How does the Government intend to handle it from now on?

I would first like to emphasise that what is important for our credibility is to refrain from taking measures that undermine the payment culture, hinder banks' efforts to reduce NPLs and discourage borrowers from participating in loan restructuring.

The passing of proposals that weaken the framework of divestments, implies a shift of the solution of the problem to perpetuity, stagnation of the amount of Non-Performing Loans and private debt, the trapping of households and businesses outside of economic activity and further erosion of the prospects for the development of the Cypriot economy, as well as favourable conditions for strategic and defaulters.

Within this framework, the Government has implemented a number of measures including the OIKIA, ESTIA Plans and the Central Agency of Equal Distribution of Burdens. In addition to the above, we recently prepared and presented a coherent package of measures which received a generally positive response.

This package resulted in the non-approval of the Law proposal that provided for the universal suspension of all Non-Performing Loans amounting to €23 billion, which, in our opinion, as well as that of international Rating Houses and Organisations, would lead to unfavourable and unpredictable consequences for the entire Cypriot economy.

To arrive at a correct framework for the sales, on the basis of the proposals we have prepared

Among the measures worked out by the Government to improve the management framework of Non-Performing Loans, is the submission to the House of Representatives of a bill to regulate the place of adjudication, within the jurisdiction of the District Courts, of cases concerning disputes between borrowers and creditors for credit facilities secured with a main residence worth up to €350,000.

The entire project is also strengthened by the promotion of the two legislative proposals by parliamentary parties, with which the Government has agreed and enriched. The protection of vulnerable groups is further strengthened by the Mortgage to Rent Scheme, which has been approved by the Cabinet and the first applications are expected to be submitted in early October.

Also, I would like to remind you that, following our own initiative, a meeting was held with the banks and credit acquisition companies, during which it was agreed to suspend sales for first homes worth up to €350,000 until the end of October, giving us enough time to find rational and permanent solutions.

With the reopening of the House of Representatives, we declare our intention to work constructively with the legislative power, so that we can arrive at a correct framework, on the basis of the proposals we have prepared.

The establishment of the Business Development Agency

What else can we expect from the Government in the future in terms of its efforts to mitigate the effects of inflation and precision on businesses and households?

As we have repeatedly stated, the Government is closely monitoring international developments, particularly regarding the issue of energy prices and inflation in general and the effects on the Cypriot economy.

In the context of this ever-changing international economic environment, we are ready to readjust our economic policies, in order to maintain the growth prospects of the economy and to support where and where it is required, our businesses and citizens.

Ready to readjust our economic policies in order to maintain the growth prospects of the economy

I would like to reiterate that any support will be carried out in a targeted way, so that those most in need benefit, while at the same time not putting our public finances at risk.

Already, the Government has taken measures to support households, with a zero VAT rate on some products and a reduced rate on other products, while the Ministry of Finance is exploring whether the list of products can be expanded, always based on the state's financial capabilities.

On the occasion of the increased cost of financing that Cypriot businesses have to face, as a result of the increased interest rates to deal with inflation, I would like to mention that one of the main priorities of the Government is the establishment of the Business Development Agency.

This Agency will facilitate the access of small and medium enterprises to financing, especially in priority sectors, and will support the economic policies of the Government.

Read the second part of InBusinessNews’ interview of the President of the Republic here, in which he discusses:

How the state approaches business and efforts to attract foreign investment.

The sanctions that damaged the reputation of Cyprus and to what extent it has been restored.

Where the efforts to include Cyprus in the US Visa Waiver programme stand.

The "leaks" of tourists to the occupied territories and the actions to strengthen our tourist product.

(Source: InBusinessNews)