Cyprus fears next tranche of bailout funds at risk

(NICOSIA) - Cyprus is unlikely to receive the next tranche of rescue funds from international lenders after apparently falling foul of them over new legislation on loan foreclosures, the government said Thursday.

EU finance ministers meet Friday to discuss the bailout programme and government spokesman Nicos Christoulides said disbursement at the end of September of the 436 million euros ($562 million) was unlikely to be on the agenda.

"Under the current circumstances the disbursement of funds is not a given; I think it will not happen," Christoulides told state radio Thursday.

The government is in a "very difficult situation" and "trying to limit the impact of the non-disbursement of this instalment".

Since the 10 billion euro bailout was agreed in March 2013, Cyprus has been praised by the troika of lenders -- the European Commission, European Central Bank and International Monetary Fund -- for its diligent completion of loan requirements.

But Simon O'Connor, EC spokesman on economic affairs, said Wednesday "it appears clear that parts of the legislation voted through last Saturday, together with the foreclosures bill, are not compatible with the requirements... in this important policy area."

He said the commission would brief the finance ministers on Friday, remains "in close contact with the Cypriot authorities on this matter and are looking forward to hearing from them how they plan to proceed."

He was referring to the adoption of a controversial bill to streamline bank foreclosures of bad debts that was demanded by the troika.

The government said lenders are unhappy with additions MPs attached to the legislation to dilute its effect on low-income groups and prevent mass repossessions.

Many of those had already been rejected by the troika as "incompatible" with the foreclosure bill it wanted.

The government said Thursday that President Nicos Anastasiades has sent two of the bills back to parliament and four others to the Supreme Court to rule if they are constitutional.

The new law ensures that foreclosures cannot be indefinitely delayed, reducing the process from years to months, establishing procedures for valuing properties and auctioning them.

Around 46 percent of Cypriot bank loans are classed as non-performing (NPLs) for being seriously in arrears.

In return for the March 2013 rescue, the government adopted swingeing austerity measures and radically restructured the bloated banking sector.