By Stelios Orphanides
The Central Bank of Cyprus is preparing proposals to amend banking legislation which will allow and regulate the sale of loans by banks to third parties in compliance to the bailout terms agreed with international creditors in March last year amid increasing political resistance, a central bank official said.
“As things stand today, there are no restrictions for a bank to sell loans to any other bank with the approval of the central bank,” the official said on condition of anonymity. “Our obligation deriving from the memorandum of understanding is to remove obstacles preventing the sale of loans to third parties”.
According to Cyprus’s bailout terms agreed with the troika of the European Commission, the European Central Bank and the International Monetary Fund who supervise bailouts in the euro area, the government have to “allow and facilitate lenders to transfer existing individual loans together with all collateral and securities to third parties at minimal transaction costs without having to obtain the consent of the borrower” by January 2015.
“We have prepared a proposal to amend the law on financial institutions which will provide the establishment of new institutions which may offer loans without being allowed to accept deposits,” the central bank official said adding that the legal framework in its current form does not regulate this type of institutions.
Buyers of loan packages will then be subjected to the same central bank regulations as local banks, will have to be registered in Cyprus and have to comply with the central bank’s non-performing loans code of conduct, while the Central Bank of Cyprus will still have the final say in this type of transactions, the official said adding the supervisory authority “wants to protect borrowers”.
While a public debate goes on over whether the parliament should suspend the foreclosure legislation, several political parties, including communist AKEL and socialist EDEK, have also expressed concern about the prospect of loans being sold to third parties citing fears these transactions will trigger massive sales of collateralised homes of non-performing loans.
AKEL, the largest opposition party in the parliament, “warned from the very beginning about the huge risks stemming from a possible mass sale of bank loans to for profit organisations,” the party’s spokesman George Loukaides said. “It is obvious that the government has attracted speculating investment funds to invest in the banking sector by committing itself to guarantee the possibility of mass loan sales so that they can soon achieve high profit margins”.
Loukaides added that opposition parties have a duty to avert the government’s plans.