The Housing Finance Corporation (HFC) has been granted the power to purchase performing loans and sell non-performing loans, enabling it to actively manage its loan portfolio. With 44 percent of its total loans classified as non-performing, this new law allows the HFC to tackle the challenge of NPLs and strengthen its financial foundation.
What new powers has the Housing Finance Corporation been granted?
The Housing Finance Corporation (HFC) has been legally authorized to purchase performing loans and sell non-performing loans (NPLs), aligning its operations with commercial banks. This enables the HFC to actively manage its loan portfolio and tackle the challenge of NPLs, which comprise 44 percent of its total loans.
Legislative Changes Empower HFC
In a significant development, the state-owned Housing Finance Corporation (HFC) has been given the legislative approval to engage in transactions typical of commercial banks. This new law, passed by the House, authorizes the HFC to purchase performing loans and divest its non-performing loans (NPLs).
A Milestone for HFC
Previously, there was ambiguity regarding the HFC’s ability to operate in such a capacity, which had prevented it from foreclosing on properties linked to NPLs. Now, with the newly passed law, the HFC joins the ranks of licensed credit institutions, equipped with greater flexibility to manage its loan portfolio.
The NPL Challenge
As per the recent data shared by Christoforos Kaplanis, the HFC’s general manager, non-performing loans represent a significant portion of the organization’s books. Approximately 44 percent of the HFC’s loan portfolio, which totals €627 million, is classified as non-performing. This translates to €274 million in NPLs, spread across 2,335 accounts.
Mortgages: The Core of HFC’s Loan Portfolio
The HFC’s loan portfolio is primarily composed of mortgages. These are essential for many families seeking to buy homes, particularly those with low to medium incomes. The HFC’s mission since its inception in 1980 has been to support such families, and its supervisory body, the Central Bank of Cyprus, ensures it operates within the necessary financial guidelines.
Procedural Steps Ahead
The transition for the HFC to begin purchasing performing loans and selling NPLs is not immediate. According to Kaplanis, it will take around 18 months post-law enactment for the necessary procedures to be established and for the HFC to start these operations effectively.
Impact on State-Underwritten Loans
Out of the total NPLs, 172 are state-underwritten loans. Addressing these will require a nuanced approach, as the government’s involvement adds an additional layer of complexity to the financial equations.
Looking Forward
This legislative update marks a new chapter for the HFC, allowing it to manage its assets and liabilities more actively. The goal is to stabilize and strengthen the financial foundation of the corporation, ultimately benefiting the Cypriot economy and the individuals relying on HFC for their housing needs. The upcoming months will be crucial as the HFC prepares to implement these changes and set a precedent for state-owned entities in the financial sector.
Quick Recap
- The Housing Finance Corporation (HFC) has been granted the power to purchase performing loans and sell non-performing loans, enabling it to actively manage its loan portfolio.
- Non-performing loans make up 44 percent of the HFC’s total loans, totaling €274 million spread across 2,335 accounts.
- The HFC primarily focuses on providing mortgages to families with low to medium incomes.
- It will take around 18 months for the necessary procedures to be established for the HFC to start purchasing performing loans and selling non-performing loans.
- The government’s involvement in state-underwritten loans adds complexity to addressing the NPLs.
