To sell or not to sell? Cyprus' Non Performing-Loan deadlock

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Troika has made a decision to not allow borrowers to repay their loans at a discounted price, however without the immediate agreement of the DIKO party, the issue leads the Government towards to a deadlock and a plan overturn.
Cyprus central party DIKO has proposed a middle solution regarding loans that need to be repaid, suggesting that borrowers can buy back their loans at a discounted price, rather than permitting the banks to sell them to investors at significantly lower prices.

The banks do not agree in such an eventuality as they fear nobody would wish to/be able to repay their loans in order to buy them back at a discounted price. More specifically, the proposal is that it offers borrowers the incentive of a strategic default; meaning borrowers who otherwise have no trouble repaying their loans could opt for non-payment, so that they become eligible to buy back their loan at a discount before it is sold.

Troika also expressed its disagreement in such a resolution in the issue, despite the fact that DIKO’s votes in Parliament are more than necessary in order to pass the new legislation and pull the Government out of the current ‘quagmire.’

The loan-sales bill is considered a key tool in the banks’ effort to reach a resolution of the economy’s most challenging issue: non-performing loans. It is thought that selling a loan, even at a discount, will clean up the banks’ balance sheets, thus allowing them to re-launch their lending activities.

The bill will be forwarded to the Cypriot Parliament for voting on Thursday, where DIKO’s votes are likely to be proven decisive in regards to this matter, as the ruling party has positioned DISY in favour of the proposal. On the contrary, the largest opposition party AKEL is strongly against selling non-performing loans and the smaller socialist party EDEK may follow on the same path.

The Government is struggling to resolve this spiky issue in the shortest possible time, as it is the last major obstacle it aims to overcome after the bailout programme in March 2016, as initially planned.