Securitisation: A Potential New Tool For The Cyprus Banking System

Reduction of non-performing debt, which remains at a stubbornly high level, is viewed by most people as essential for the long-term health of the banking system in Cyprus. In order to help achieve this objective, the Cyprus Government has proposed legislation to introduce debt securitisation, a measure originally recommended by the "troika" of international lenders, which it believes will facilitate the disposal of debt, including non-performing debt.

Hitherto, there has been stubborn resistance in certain quarters to measures such as securitisation and modernisation of foreclosure procedures, generally on populist grounds. In addition, there is a more reasonable concern that pooling of portfolios can impair investors' ability to judge risk and that competitive securitisation markets with multiple originators may bring about a decline in underwriting standards, as was the case in the US in the period prior to 2008.