Central bank drafting proposals to allow sales of bank loans to third parties

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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.

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About Author

Stelios Orphanides is a journalist at CyprusBusinessMail.com. To contact Stelios Orphanides: [email protected]

  • Salomi

    There is no update about foreclosure and recovery of NPLs.

  • Spanner Works

    “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,”” – Banks are ‘for profit organisations’, so what is the difference?

    • Bystander

      Not from AKEL point of view. They are still regarding banks as source of cash for political parties.

  • guest bernard

    The most important people to protect are those who are victims of stealth mortgages. Those who have paid for their homes only to find the vendor has, without their knowledge or permission borrowed money using the sold property/land as collateral against the loan. Collateral they knew was no longer available for that purpose.

    That it is fraud, that it is a criminal offence and the banks /lending institutions are the victims, albeit willing victims since they did not make even the most perfunctory enquiries as to the suitability/provenance of the collateral they were accepting. Let also not forget the part the lawyers have played in this obvious fraud.

    Selling such loans on would, in my opinion also be fraudulent, since the banks are NOW well aware of this situation.

    The time has come to release the charges on such property and to seek security from the borrower which is suitable for the purpose. Failing this, the banks must acknowledge they have made huge mistakes and now have some NPL’s which are entirely unsecured.

    • Salomi

      Very true.

    • Jessica Spencer

      my place is also on the chopping board for this very reason, lets see if i will stil have a roof over my head in a year

      • guest bernard

        A living nightmare for you, It is just unconscionable and no one seems to want to
        help the thousands in your position. Shame on them all. May all the vendors who did this to you rot in hell.
        Perhaps you should all get together and send ten victims to each ‘friendly capital’ and chain yourselves to the ROC Embassy there, then call a press conference.

    • Kakos-Advocate

      Dr, you’re absolutely right but it was mainly developers taking advantage of a family friendly type trusting banking system (that unfortunately didn’t close this terrible loop hole).

      It might be a good thing that the government is weary of adopting a policy that clearly enables even more liberty and advantage to potentially be taken from borrowers.

      Protecting vulnerable families from what is inevitably going to lead to a much bigger and worse problem without plenty more extra skilled authority people and local regulation and regulators, which the EU doesn’t care to ask about or budget for here.

      • guest bernard

        Agree with you…again.

  • Себастьян Returns

    Selling NPLs would force the banks to take a hit on their P&L ?

    Furthermore. how would they pass the stress tests afterwards ?

    • Spanner Works

      Most of the NPL’s will already be written down in their books, so there won’t be much of a hit.

      • Себастьян Returns

        You surprise me… I would be very pleased to hear what the write-down amounts have been so far.

        • Alexander Reuterswärd

          I am sure it is over 50% already, and more will be taken…and even after 50% is written off 60% remains NPL….

          • Себастьян Returns

            The banks have already written off 50% of NPLs ?!!..

            Or they are waiting to write them off ?

          • Alexander Reuterswärd

            I am pretty sure it already is done, but i can be wrong.

    • JSReturnsAgain

      How do they sell developers loans, where people have paid for properties on mortgaged properties. Ooops this question has been asked for 2 years and no answers. If the owner pays, it’s goodbye Cyprus property market and any credibility. If the banks have to write it off, the banks fall. Wonder why nobody has come up with an answer. Simply put, the banks must fail, as they should have done 18 months ago.

      Example of banks mismanagement : Leptos has a field in Kato Paphos dubbed ‘NeoPolis’, they bought the field for €10m and the bank foolishly mortgaged it for €182m. Guess what, it’s still a field. Do you think Leptos still has the money………..That’s one write off of €172m, how many more are hiding out there ?

      • Kakos-Advocate

        I don’t know any Bank that offered more than 80% the value of any collateral. I enquired before the crisis at all banks and that was a rule they were all pretty firm on. They could only offer more, if a building starting going on the land and increased the value of it so I don’t understand how the mortgage could have gone so high if the value was only €10m. The Leptos assets all around the globe should be frozen and he imprisoned for fraud along with this contacts in the bank. All these scammers should be prosecuted to recoup whatever is possible from any of these types of NPLs otherwise the ordinary people will end up paying for it one way or another. They shouldn’t be written off and forgotten about.

        • JSReturnsAgain

          There were rules for the normal man in the street, but certain developers were allegedly giving houses and land to bank officials. Relations of bank employees and bank employees themselves got some pretty amazing deals. By amazing I mean totally outside what banks should be doing. I heard that one bank had somewhere in the region of €120m worth of unsecured loans…… with one instance being a lady on €22k per annum getting an unsecured loan for €400k. It’s not what you know or who you know, it’s what you know about certain people and what you can bribe them for. Remember, a lot of people got on the slippery slope to corruption through doing little favours or just accepting a small envelope, this then escalates. this is why all corruption should be treated the same – jail time for both giver and receiver.

          • Kakos-Advocate

            Totally agree shouldn’t the perpetrators of crimes be punished rather than the entire population, which is what these economic reforms are doing!

  • alexander reutersward

    The mafia must be rubbing their hands, plenty of cash to invest and banks desperately trying to get anything from their NPLs

  • Jessica Spencer

    and so the fun begins

  • Kakos-Advocate

    Absolutely never, without borrowers agreement and much tougher layers of Financial Authority regulation and Local regulation to protect the families from unscrupulous Investor groups after a quick turnaround.

    It maybe better to reconsider declaring bankruptcy and dumping the Euro, reverting to our Luxembourg model economy although I prefer the idea of chasing GDH (Gross Domestic Happiness) instead of GDP before our entire social structure collapses infront of us

    The economic war being waged against us is not going to stop until the leaches sucked everybodies blood out.

    If this is civilised policy, they can stick it where the sun doesn’t shine, Turkey is better off out of the EU and we’re doing them the biggest favour ever by vetoing they’re entry.

    When are the smaller EU states going to face up to the fact that all are being forsaken one by one for what, the Power house that didn’t succeed killing us all with guns to pollute us all to death with policies like this and rubbish goods that encourage everyone to consume more not less.

    • Bystander

      Isn’t selling loans (including non-performing ones) a usual practice in other countries? I thought they were sold in quantities.

      • Kakos-Advocate

        Yes it is and it is the most stinky practise with the worst kind of results.. Most of the foreclosed in the US are down to this and the ones that keep the homes tenanted after they take them over make the occupiers lives a living hell, which local authorities never have enough laws or regulations or staff to enforce anykind of protection for the familes.

    • Себастьян Returns

      Well said Sir !

    • Alexander Reuterswärd

      what wellbeing is thrown out? the one that the rest of the world has given you through loans that you know cant repay without further help?

      • Kakos-Advocate

        What a loan that can’t be repaid until the country is destroyed and the well being it’s people gone coz if they’re not already dead from starvation, depression or broken hearts, they’re suicidal or even considering terrorism. Is that what you call what the world is giving us, oh well then yes please, I misunderstood!

        • Alexander Reuterswärd

          I am talking about the loans that was taken by Cypriot Governments, Banks, and ordinary people between 2000 and 2012 to fund a lifestyle they not could afford.

          • Kakos-Advocate

            Our Government (gave ordinary people jobs) and our Banks (gave ordinary people loans to build family houses) so you’re mistaken. This doesn’t compare in the slightest to what the ordinary people are suffering now with the ECB, IMF and commission plans for our countries folk (increasing unemployment is just the start). So again, our well being and life is being sucked out of us by these leaches (your beautiful world of givers) who will stop at nothing until our country (like other EU members) survives off an ability to access international markets for loans (building up higher and higher deficits).. These out of touch unelected political elite will not even stop crushing our institutions even after ordinary families are out on the street and dying. The simple reason is that they care less about us than our own elected people (I have faith that all the scoundrels we have will be punished) unlike the European system that rewards people that manipulate rules and deceive.. eg. Look at Junker, what a role model to aspire.

          • alexander reutersward

            The government did that but with borrowed money, and salaries out of control.

            The bank’s did that with borrowed money and helped building the bubble with giving people loans for new cars and holidays etc on top of that.

            Cyprus needs a substantial economy based on profitable business, once that is done people can get jobs there and earn money.

          • Kakos-Advocate

            No it does not need a substantial economy based on polluting types the so called ethical businesses you must be referring to. We do not have a huge population to serve or need to add to servicing others needs like economic slaves. What you must be talking about is Cyprus utilizing international funds, if so all countries do (running deficits as mentioned only with higher GDPs, which I fundamentally disagree with anyway). Loans Cyprus took were backed up from profits made after decades of investment, including in the IMF and Greek bond market, as well as businesses that supported our economic model, which was a roaring success for decades (very strong in shipping, tourism and financial services especially, which have all been set back decades since foreign interference of our internal policy making (which is scaring investors and customers off, and the EURO doesn’t help either. It is not that reforms were not needed, they were and are but at a very different pace and under conditions that suit us and our needs not others).

            Cyprus was a net contributor to the EU for along time… and has had next to nothing equal to what it has given back yet (sorry I don’t share the others enthusiasm for bail out loans, I’d rather have declared bankruptcy the second they wrote of the bonds).

            I hear you, but heard all this sort of German type ranting about rich nasty big nose Cypriots, driving lots of mercedes and retiring early for years. This sort of propaganda has been going on for a long time here, it’s a lot like the hate towards Jews leading up to the second world war.

          • Salomi

            Your first paragraph: a economy is not subservient on the population-it is reliant upon the minimum deficit gap and an ethical balance of payment system.These two inevitabilities can not be achieved without some ‘ethics’ in the economic system.Consequently it is only a stable economy which can reduce the risks as mentioned in your other paras

          • Kakos-Advocate

            What confusion you write my Dear, reliant on a min deficit gap and ethics…??? what a lot of nonsense dribble. Howabout surplus, which is what the best economies operate, like ours was for decades until we found oil and gas and the IMF, ECB targetted us to plug some of the Global fund gap!

            We’re not like those huge economies that unfortunately lack much more scruples and ethics than us. Whatever mismanagement, our Government didn’t force our population to risk jobs, paying bills, affording food, wipping out cash flows businesses need to operate or steal peoples pensions, or deposits etc.. etc.. No that was all our wonderful helpers idea, all for us to get more easy and hang ourselves.. Lets pretend nobody else was connected to the Financial crisis and all others have lovely ethics and practise perfect codes of conduct except here in Cyprus. Lets feel better with that thought and keep enslaving our population like the others have done. Lets make ourselves subservient to a rubbish imported economic base that doesn’t suit our landscape culture.

            Lets just hope our minds and bodies can work like robots to succeed with this concept of living and dismiss other facts warning us against the idea!

          • Salomi

            Dear Kakos, the problem with economic reality is that one can not dream and one can not fake it. The structure here is rotten so adversely that it will not/can not take a shape without overhauling.

          • Kakos-Advocate

            That’s not what Professor Sir Christopher Pissarides was saying about the Cyprus economy. Sorry you must be wrong, it is getting more rotten now by the day (since International money came into the picture and we started running deficits). This is not to say there was not alot of space for improvement before but please please consider carefully what you are saying because it is very Anti-Cypriot propaganda that is fuelling a lot of hatred towards us by even the liberal people across Europe.

          • Salomi

            It is pure economics.Please do not give a wrong turn.

          • Kakos-Advocate

            Pure maybe is one way of turning it, as opposed to Applied! I hope you’re not suggesting like everyone else the economic base needed changing, reforming to improve is one thing but destroying sectors of the economy to change it to unrealistic possibilities even if pure in ideology is something else completely, especially if that ideology is dogged with ulterior motives.. such as a clearly unequal union of states such that we have in the EU.

          • JSReturnsAgain

            They can live in their Mercs in the street that were bought with the dodgy ‘house’ mortgage signed off by uncle George. 25 years of complete mismanagement by Cypriots of Cyprus put us in today’s mess. Blaming foreigners is a hilarious when ultimately Cyprus got what Cypriots voted for, easy money; unfortunately there is not such a thing as easy money and now things will get a lot harder. Particularly when the country adds insult to injury by repeatedly attacking those who are trying to help us. For once could my countrymen realise that the world does not revolve around Cyprus and look at the Republic from an outsiders point of view; then people might realise the real state of the country.

          • Kakos-Advocate

            I totally agree with every single thing you have said. However, unfortunately it does not change the fact that Cypriot behaviour (like the populations of the US and Allies, including the EU) is a bi product of the root cause, which is a system of irresponsible lending that these foreigners imported that Cyprus is tangled up too much in (that unravelled after the Global financial crisis, created on wall street).

            You can laugh at anyone who reminds us what the root cause is, rather than focus on the symptoms but that won’t help. All scoundrels should have their mercs seized and sold off at auctions rather than allowed to be kept used as camper vans in my humble opinion. Any criminals need to be prosecuted but painting everyone by the same financial mismanagement brush will do us no good at all.

            The EU is not helping us by bailing us out, it’s just more easy money, can’t you see that? And this is after breaking up (under the guise of reform) of our entire economic model (which whether you agree or not was much more suited to our Island and a success story). Unfortunately, the bad comes with the good ideas imported, such as corruption and fraud, which is hardly ever punished abroad.. It might not look like it, but in the main our elected representatives are trying to tackle the problem head on.

    • Salomi

      Reference second paragraph: Currently any move is impossible and it is a impasse situation .Until the loads of the loan and debt of Eu is paid back and MOU is closed ,, nothing is possible.

      • Kakos-Advocate

        Ofcourse it is possible to get rid of the EURO. Carrying on with it is just making things worse. The EU can be paid back the bail out money faster if they support the pipeline project, faster still if the Greek bond holdings they wrote off gets paid back!

        • Salomi

          Over all it is impossible to pay back the loan for a long time.

          • Kakos-Advocate

            Only because the IMF and ECB wants to keep us on the hook, which we will be unless we take an about turn! it wouldn’t take long at all if our money stolen via the bond write offs were returned and the unsecured loans traced (& brought back from London, New York, Geneva etc..). Our internal reforms must be measured to suit us and our economy not these so called helpers, hanging us with more easy money (before all of the mismanagement problems are fixed (and all criminals punished)).

          • Salomi

            There are many “IFs” and BUT” in your comment. Nice.

            I also wish that all these ifs and buts may end up and an economic revamp be possible through honest economists and business managers at the top .

          • Kakos-Advocate

            1 IF (dependant on foreign ethical and moral correctness). Don’t hold your breathe or are we the only ones to suffer from this!!

          • Salomi

            A logical consequence.

  • Brettblade

    Does this mean loans can be sold to a guy called Vinny who will send a couple of his debt recovery boys round to ensure payment.

    • Kakos-Advocate

      Yes