The public debate on foreclosures has resurfaced, but the core issue is not political. It is deeply economic and social. The current environment for managing non-performing loans is fundamentally different from that of the banking crisis, and this distinction is crucial in understanding why interventions in the existing framework may ultimately prove harmful, including for borrowers themselves.
The political initiative by Progressive Party of Working People (AKEL) and the Green Party of Cyprus, even if driven by good intentions, risks generating new problems rather than solving existing ones. The issue is not foreclosures themselves, but the continued existence of a vast stock of inactive non-performing loans.
Where the non-performing loans now sit
The problem of non-performing loans no longer lies on bank balance sheets. It has shifted to credit-acquiring companies, which today manage loans with a nominal value of approximately €18 billion. Among them is the state-owned KEDIPES, the largest single manager of such debt.
This means the debate no longer concerns only banking system stability, but the effective management of private debt outside the banking sector, with direct consequences for the real economy and public finances. Many of these loans are very old, raising legitimate questions about the value of extending cases that in some instances date back to 2006.
Why the economy benefits from resolution
The economy has a clear interest in restructuring this large volume of problematic debt. As long as loans remain unresolved for extended periods, property, capital and productive resources remain locked up instead of being reintegrated into economic activity.
Gradual resolution allows households and businesses to re-enter the real economy, enables the property market to function with fewer distortions, and helps the state limit the fiscal risks inherited from the crisis.
The role of foreclosures in practice
Within this framework, foreclosures function primarily as a pressure mechanism that encourages consensual solutions. Data published by KEDIPES show that the majority of cases end in restructurings, repayments or debt-for-asset swaps, rather than auctions.
Only a small proportion of cases are completed through successful foreclosure, while a significant number are cancelled after borrowers engage and proceed with restructuring. In effect, the framework operates mainly as a negotiation incentive, not as a mechanism for mass loss of property.
Delays and strategic default
Experience also shows that when procedures become excessively slow or uncertain, the phenomenon of strategic default is reinforced. Unlimited delays through court processes do not protect vulnerable borrowers. Instead, they benefit those with the means to artificially prolong proceedings.
The outcome is that compliant borrowers and taxpayers ultimately bear the cost, as value recovery from non-performing loan portfolios declines.
KEDIPES and the taxpayer dimension
The case of KEDIPES is particularly illustrative. As a state-owned company, its performance is directly linked to public finances. It has already returned approximately €1.75 billion to the state from the management of non-performing loans and continues efforts to repay the state aid granted in 2018.
Any deterioration in the debt recovery framework affects its ability to continue these repayments, shifting the burden back onto taxpayers.
KEDIPES is effectively the largest remaining asset the state holds from the management of the banking crisis. Its value depends on how effectively it can recover part of the legacy debt. If recovery mechanisms are weakened, the value of this asset declines and the eventual cost to society increases.
Social safeguards and targeted tools
At the same time, available data show that the current framework, combined with targeted social tools, delivers tangible results. The Mortgage-to-Rent scheme provides an exit for vulnerable borrowers who cannot retain ownership of their primary residence, allowing them to remain in their homes as tenants.
The growing number of approvals and property transfers suggests that a social safety valve exists for those genuinely unable to meet their obligations.
In parallel, early repayment schemes with discounts encourage borrowers who now have the capacity to pay to settle long-standing liabilities. This allows individuals to free themselves from decades-old burdens and helps the economy gradually reduce the stock of red debt that weighs on growth.
Why weakening pressure tools is risky
It is also important to note that many of the loans currently managed by KEDIPES are very old, often more than fifteen years. Recovery is inherently difficult and requires a balance of pressure and flexibility.
Fully weakening pressure tools is unlikely to produce better social outcomes. More plausibly, it would freeze procedures, reduce incentives for cooperation and prolong uncertainty for all parties. This applies equally to other loan servicing companies.
The need for stability, not uncertainty
Overall, the economy needs stability of rules and gradual clearance of past liabilities, not a return to prolonged uncertainty. Protection of vulnerable borrowers must be targeted and socially justified, not horizontal and unchecked.
Otherwise, the cost is transferred to taxpayers and compliant borrowers, who will ultimately face a system less willing to offer consensual solutions.