NICOSIA, July 18 (Xinhua) -- Moody's rating agency said in a report on Thursday that recent amendments to Cyprus's law on foreclosures were credit negative for Cypriot banks.
The Moody's report said the changes in the legislation introduced by opposition parties made the foreclosure process more difficult and complicated and also hampered their efforts to cut their high stock of non-performing loans, thus forcing them to make increased provisions.
Cypriot banks still hold about 8 billion euros in non-performing loss, or about 30 percent of total loans six years after the 2013 economic crisis and the resolution of the banking system.
"A failure to reduce non-performing exposures will increase provisioning needs for the banks. The amendments will likely make it more challenging for banks to foreclose on collateral held against defaulted borrowers," Moody's report said.
The amendments effected by the opposition parties were aimed at protecting low income loan owners ahead of the application later this year of a plan to protect their primary residence used as collateral against foreclosure.
It introduced broaden reasons for appealing by borrowers against moves by banks to foreclose on collateral and challenging a property's auction.
The amendments allow the defaulted borrower to obtain a court decision that stalls a foreclosure process if it is proved that a bank has not taken all necessary actions required by the central bank directive to restructure a nonperforming loan.
These measures are likely to cause long delays in the process because of the slow judicial system.
According to central bank data, in the first quarter of 2019, 16.6 percent of properties where the foreclosure process had commenced, were sold at first auction, up from 4.4 percent from Q4 2018.
Moody's said the new amendments form a less credible threat to bring defaulters to the negotiating table, encouraging weak payment discipline and strategic defaults.
"We expect all banks within the system to be affected by these changes, including our rated banks, Bank of Cyprus and Hellenic Bank," Moody's said.
Cypriot President Nicos Anastasiades was reported to examine the possibility of sending the legislation back to parliament for reconsideration, citing dangers to the banking system and possibly more expensive government borrowing.
Relaxation of the rules preventing foreclosures introduced a year ago on the behest of the European Union were cited by rating agencies for their raising of Cyprus creditworthiness to investment grade, reducing borrowing cost.