Ombudsman frees guarantor from 26 year old loan in landmark ruling


By Stelios Orphanides

Financial Ombudsman Pavlos Ioannou said that he ruled in favour of relieving a woman of her obligations from a loan she had guaranteed 26 years ago after the bank failed to inform her that it was in arrears.

Ioannou said on state-radio CyBC on Wednesday that his ruling was based on the retroactive effect of the law on the limited protection of guarantors of a particular category which came into force in 2015 and which could apply in the woman’s case.

The unnamed woman had agreed with a cooperative bank to guarantee a CYP25,000 (€42,715) loan in 1991, Ioannou said. The bank subsequently failed to inform her about how the loan was performing and when the borrower eventually died, it did not attempt to collect the dues from the inheritors of the deceased.

At some point, when the woman went to the bank to apply for a loan for herself, she was told that the loan she had guaranteed remained unpaid and that the outstanding had in the meantime risen to €365,000, Ioannou added.

For the ruling to be binding, both sides have to accept it, he said.

Whether the state-owned Cyprus Cooperative Bank will accept the ruling and what the probable impact will be on its capital, remains unknown as the bank was unavailable for comment.

In March, the ombudsman ordered the return of €111m to overcharged Co-op borrowers and as a result the bank has had to re-adjust its provisions within the 2015 earnings to show more losses. The bank, which is struggling with about €6.5bn in non-performing loans that represent more than half of its portfolio, is currently working on a listing on the Cyprus Stock Exchange as part of its effort to raise several hundred million euros in fresh capital with the issue of new shares over the next years. The Cyprus Cooperative Bank received almost €1.7bn in 2014 and 2015 in taxpayer’s money to comply with capital requirements.

“What’s important is not the decision itself, but the legal framework that we could apply in the specific case provisions which allowed us to come to this decision,” Ioannou said.

He added that it was clearly in the “legislator’s intention” to include a clause in the law which apply retroactively in the case of this guarantor, Ioannou said, adding that her case was not an isolated one.


About Author

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

  • Kevin Ingham

    If the Co-op accepts the ruling it’s balance sheet will be taking an almighty hit.

    I would be astonished if the original loan of €42,715 was inflated to the outstanding amount of €365,000 as an asset on the bank’s balance sheet (that would surely be illegal accountancy practice) but if failure to properly notify guarantors is grounds for absolving guarantors of responsibility then it has catastrophic potential for the banks and any insolvency agencies looking to take on the NPLs

    • Barry White

      Not too worry, there must be thousands of people across the country and around the world lining up to shove over their hard earned money to be shares at the Coop IPO on the Cyprus stock exchange, or not.

      • Bilbo Bawbag

        Ho Ho Ho

  • Monica

    It seems that the bank has, for many years, not had anyone capable of accounting procedures !

    • Barry White

      They certainly get the wages and bonus payments correct and on time, every time.

  • alexander reutersward

    How can a bank fail to inform the guarantor, if that is correct, than the ruling is correct. What a sad state the banks has been in!!

  • Douglas

    Poor level and total incompetence of Banking administration, sensible outcome by the Ombudsman.

  • EGB

    How a reputable bank can fail to claim from the estate of a dead person as the primary source of recovering a loan is a mystery.

    • Spanner Works

      It is not a mystery, it is incompetency!

    • BearFace

      Absolutely! The bank surely has the right of set-off built into every loan agreement so any funds held with them by the deceased can be applied to the loan regardless of any Will and the executor may even be personally liable if Grant of Probate was abused. How an estate can be distributed without debts being settled yet involve no illegality is incomprehensible.

      The debtor and the guarantor are jointly and severally liable – the guarantor is not simply a back-up. It therefore seems reasonable that a guarantor should receive the same notices as the debtor if the debt is regarded by the bank as doubtful or delinquent. To rely on the guarantor while taking no action at all with regard to the debtor is unacceptable and wholly inequitable so, on the limited facts presented, it looks like the Ombudsman’s decision is correct in equity and he seems to have justified it in law: the bank didn’t have clean hands so can’t expect a decision in its favour.

      How come the Ombudsman’s decision isn’t final? What is the legal status of the Ombudsman? Does any refusal of his decision involve an automatic referral to the Supreme Court on a point of law?

    • Philippos

      Its the words “Reputable” and “Bank” that bother me. This is a bloated group of Credit Unions taken over by a few clever villagers for their own ends that has become an embarassing incompetent disaster