Cyprus must see assets seized to tame bad debt, central bank governor says

Cypriot lawmakers must make it easier for banks to seize property when borrowers default to tackle the issue of bad loans, the country’s most pressing issue, central bank governor Panicos Demetriades said.

Borrowers who intentionally fail to repay loans need to be reined in, Demetriades said in an interview on Tuesday in Athens. A possible political fight may delay planned legislation to tackle the Mediterranean nation’s stock of bad debt, he said. The law is required under the country’s 10 billion-euro ($13.8 billion) international rescue put together a year ago.

“There’s a lot of strategic default happening,” Demetriades said. “Borrowers need to know that there’s a consequence when you don’t pay. It’s still the case that the banks are not able to basically carry out any repossessions in any meaningful timeframe. That’s the top priority now, to address NPLs,” or non-performing loans.

A holdup in addressing bad debt could, as happened in Greece, hamper Cyprus’s plan to recover from a financial crisis that came close to forcing the country out of the euro. Demetriades, who also sits on the European Central Bank’s Governing Council, steps down on April 10 after resigning in the wake of a long-running feud with Cypriot President Nicos Anastasiades. Demetriades declined to comment on the circumstances of his resignation. Demetriades will be succeeded by Chrystalla Georghadji, the country’s auditor general.

Rising unemployment, falling credit and the bad-debt stock are the challenges facing Cyprus’ bailout program implementation and the road to recovery, according to an International Monetary Fund staff report published on Tuesday.

While the economic adjustment program remains on track, the risks to implementation...