State intervention in NPLs faces legal and economic limits
Two key challenges stand in the way of introducing a new scheme to address non-performing loans (NPLs), according to Finance Minister Makis Keravnos.
Kervanos responded to a question from MP Andreas Apostolou on the matter, Politis reported, saying that the first hurdle is the need for creditor cooperation.
The second stumbling block is related to securing approval from the Directorate-General for Competition of the European Commission.
The minister explained that all government-backed NPL schemes require the voluntary participation of creditors.
He stressed that subsidies provided under these schemes are unlike typical government grants that operate within the framework of a state–citizen relationship.
“In NPL schemes, the state intervenes in the relationship between creditor and borrower,” he said, adding that, “for these schemes to succeed, each creditor must participate with their respective loan portfolios.”
He also pointed out that loan agreements are private contracts between creditors and borrowers, with creditor ownership rights safeguarded through property mortgages.
“This ownership right is strongly protected in Cyprus, even by the constitution,” he stated.
He questioned how any new state scheme could be effectively implemented if a major creditor were to refuse participation.
Keravnos further underlined that, as with previous plans, approval is required from the Directorate-General for Competition, a process that could take several months.
The EU Commission will examine whether creditors recover more within the framework of the scheme than they would without it.
The difference between these two outcomes is classified as state aid to the participating businesses.
Apostolou had asked the Finance Minister to clarify whether the government plans to revive the “Rent for Installment” scheme, and if so, whether changes would be introduced to expand eligibility.
He also inquired whether there was political will to introduce a new plan aimed at protecting the primary residences of those who were unable to benefit from either the Estia or Rent for Installment schemes.
According to the Finance Ministry, a revival of the Rent for Installment scheme is not considered advisable at this stage.
The scheme had accepted applications between December 3, 2023 and September 6, 2024, as well as during a brief second window from October 3 to 31, 2024.
Throughout both periods, the ministry ran an awareness campaign, including numerous media appearances by officials and a dedicated helpline operated by state-owned asset management company Kedipes to assist and guide potential applicants.
However, after applications reopened in October 2024, the initiative received pushback from the Association of Credit Acquisition Companies and the Association of Banks.
Some applications submitted during that final period were reportedly not accepted for processing by creditors within the scheme’s framework.
The ministry now believes that either reopening the Rent for Installment scheme or launching a new government programme would likely yield limited success and therefore is not recommended.
Keravnos mentioned that the Finance Ministry has developed four different schemes to resolve housing-related NPLs.
The main two were the Estia scheme introduced in 2019 and the Rent for Installment plan launched in 2023.
Two additional supplementary programmes were also deployed. These include the Oikia scheme in 2021 and the debt restructuring scheme operated by the central agency for the equal distribution of burdens in 2019.
The minister pointed out that although official statistics on non-performing loans began in 2014, many such loans had become non-performing well before that.
Some even became problematic shortly after issuance, “from the moment of their creation”, as he put it.
Over the years, significant resources have been committed by both creditors and the state to arrive at mutually agreeable solutions.
Keravnos also highlighted that banks have already made very high loan loss provisions on these portfolios, recognising the expected losses from loans unlikely to be repaid.
Based on those provisions, he said, the loans were then sold to credit acquiring companies.
This, he explained, means that any new scheme should offer creditors a return that is less than or equal to what they expect to recover over time.
As a result, borrowers would pay only a fraction of the loan’s original value.
However, he argued, offering more generous terms in a new scheme than those offered in previous ones is neither fair nor economically rational.
“It creates the impression among the public that they should wait for a better plan,” he said.
He added that “it is also unfair to those who joined earlier schemes under less favourable conditions“.
Overall, Keravnos stressed that it would be very difficult for the Finance Ministry to justify any new proposal that creditors might perceive as financially burdensome.
