Roundup: Troika reports staff-level agreement with Cypriot gov't

Cyprus's international lenders reached a staff-level agreement with the government after completing a survey of the economy last week, a statement said on Monday.

The agreement between technocrats of the European Commission, the European Central Bank and the International Monetary Fund (also known as the troika) opens the way for Cyprus' exit from a three-year economic adjustment program.

"Agreement on policies that could serve as a basis for completion of the review, reflect the progress and policy commitments under the program," said the statement issued by the three institutions.

The staff-level agreement is subject to approval by the Eurogroup in January, which will give the go-ahead for the release of a last tranche of a 10-billion-euro (10.68 billion U.S. dollars) bailout package agreed on in March 2013.

Even after the last tranche, Cyprus would leave 2.5 billion euros unused.

Technocrats who wound up a two-week visit on Friday said they gave a positive assessment of a law providing for the sale of packages of non-performing loans to investment funds under strict control by the central bank.

"Reducing the excessive level of non-performing loans (NPL) remains the number one priority," the troika said.

But it noted that there was evidence that the slow pace of debt restructuring was picking up.

Non-performing loans make up almost half of the bank loans, amounting to 28 billion euros.

Finance Minister Harris Georgiades said that the ratio of non-performing loans may drop to about 22 percent of total loans soon, as restructured and serviced loans stay on the NPL list for 90 days under directions by the European Banking Authority.

It added that reducing NPLs was a necessary condition for a sustainable stabilization of the banking system and the resumption of lending.

The report urged the authorities to ensure the effective implementation of recently approved legislation, including the insolvency and foreclosure laws, aiming at helping banks to "decisively" reduce their stock of bad loans.

The troika cautioned that continued sound public finances were needed to ensure that the public debt ratio returned to an acceptable level while steering public spending toward growth-enhancing activities.

"Finally, moving decisively ahead with structural reforms --including, first and foremost, the privatization process, electricity sector unbundling and the public administration reforms -- is critical to cement the improvements in public finances and support sustained economic growth and job creation," said the troika report. Endit