New reality for borrowers: ‘settle debts or face consequences’ (Update-1)


By Stelios Orphanides

The changes in the bills approved by the council of ministers aiming at helping reduce non-performing loans provide banks with effective tools and shield them from the need of further increasing provisions and the subsequent need to raise more capital, a finance ministry official said on Friday.

The bills are a product of consultations with all stakeholders, and have encapsulated recommendations made by the International Monetary Fund (IMF), the European Commission and are based on best practices worldwide, Andreas Charalambous, head of the finance ministry’s financial stability directorate, said in a telephone interview.

“If the framework is deemed effective, which it is very likely since we are in dialogue with them on the changes we proposed, this means that they are making assumptions on the recoverability from non-preforming loans will not be as aggressive as they are today which means that the need for provisions will be lower,” he said. “Today they are making very extreme assumptions which lead to large capital requirements.”

The bills provide incentives to borrowers to repay their loans, punishments for those who ignore their assumed obligations to the banks and introduce novelties, such as electronic auctions. They give banks more effective tools, including incentives at the negotiation table, Charalambous said.

“Existing legislations aiming at addressing strategic default need to become more effective,” he said and added that the changes would lead to more restructurings which is “for us the preferred solution”.

While “it is impossible for someone to quantify” the impact the bills will have on helping banks lower their €22bn non-performing loans mountain, “what one can see is whether the framework is improved,” Charalambous continued. “What’s important is that you introduce the right incentives. Those who can but do not pay will have an incentive either to settle their debts or face the consequences.”

The parliament’s approval of the new bills, which aim at addressing gaps in existing legislation are a condition for the European Commission’s sanctioning the deal signed by Hellenic Bank and the Cyprus Cooperative Bank earlier this week, transferring the latter’s operations and deposits to Hellenic.

The need for the deal resulted after stricter supervisory rules made a further increase in in the provisions for loan impairments by the state-owned lender necessary. The bank, which received in 2014 and 2015 a capital injection from the government of almost €1.7bn, was unable to tap fresh equity from the market while facing a non-performing loans ratio of roughly 60 per cent.

Charalambous warned that if following the parliament’s approval, the new framework is considered insufficient to help banks collect their non-performing loans, “we will then continue witnessing recommendations for capital increases which create the problems we are facing in the case of the Co-op related to its capital requirements”.

The proposals approved by the cabinet provide for changes in legislation on the transfer of immovable property, on the sale of loans, on insolvency and on companies, by speeding up foreclosure procedures, according to the Cyprus News Agency (CNA).

The parliamentary finance committee is scheduled to review on Monday the bills before they are put on vote on July 6.

According to the CNA, the proposed changes to the law on the transfer and mortgage of immovable property provide for electronic auctions of foreclosed properties, the abolition of provisions causing delays, changes in the way notifications from the lender are served and providing the lender access to a mortgaged property for the purpose of evaluating its value.

In addition, the bill provides for the fragmentation of a mortgage to cover several other lesser loan agreements so that no loans remain unsecured when the collateral becomes property of the buyer of a loan.

Other provisions change the process for the sale of a property and restrict the time in which a lender can acquire a property.

Also, the bill abolishes the preferential treatment enjoyed by borrowers whose primary home is worth less than €350,000 when their debt repayment is subsidised with taxpayers’ money.

The changes in the bill on the sale of loans introduces clarifications and amendments to the existing law and exempts the buyer from transfer fees resulting from the transfer of collateral. The bill also regulates several other aspects such as the transfer of rights and obligations, priorities, the continuation of lawsuits and the storage of documents. In addition, it also grants loan purchasing companies access to the data exchange system so that they can evaluate the solvency of borrowers.

According to CNA the proposed draft bill on insolvency clarifies definitions, abolishes certain criteria and expands others to make the framework more attractive and scraps the preferential treatment of government bodies when it comes to collecting of dues from persons entering a personal repayment scheme proposed by an insolvency consultant.

In addition, the bill terminates the protection enjoyed by borrowers receiving a subsidy to repay their loans after they are in arrears for three months.

The proposed changes in the company law aim at encouraging both borrowers and lenders to restructure corporate debt. They also ditch the preferential treatment of state bodies which they would enjoy if the borrower was placed in liquidation. Also in the case of companies, borrowers lose the protection of the law when they receive a subsidy to repay their debts and are three months in arrears.

Lastly, the changes provide for an increase in the commission received by insolvency consultants to 30 per cent from 20 per cent if the proposed personal repayment scheme is implemented, which will offer consultants more incentives to lead negotiations between borrowers and lenders to an agreement.



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

  • Jeremy Rigg

    Well better late than never, but only after the ECB told them to.”put up or shut up”, take your pick. No wonder the Bish bailed out of Hellenic. We must be 5 minutes to ‘ meltdown’.

    • Roger Thecabinboy

      The Bish bailed-out as he needed a bail-out of his own – the Chuch was Eu 100 million in debt to the banks…and yes the NPL situation can still cause another Meltdown…

      On primary residences for either borrowers or gurantors, I would suggest that unless the loan is restructured and the scheme followed, the owners should be declared bankrupt, banks should get the properties and the former owners become tennants, subject to eviction if they do not pay the rent…that or the owner is given an opportunity to “Downsize” his property through an exchange for a lower value property held by the bank – and the cars go too…..

      • Neroli

        Sure Roger!!! I would love to see that happen but…..

      • Jeremy Rigg

        Roger, all that you say is totally just and desirable but far too sensible for the majority of defaulters, many of whom thought they were going to walk away with a hefty wad of cash scot free.

        • Philippos

          We need to change that expression from Scot Free (a la Scott Freeman) to Cypriot Free, rhymes with “Slippery” and as a Cypriot i believe it to be entirely appropriate until we mend our ways and then we can pick on another nation, maybe some where like Greece or China. and pass the baton and the description

  • Didier Ouzaid

    The paradox of sovereignty. These politicians (and many people) want it, claim it, only to enjoy the rights it provides but very few of the responsibilities. They will not make any decision that is deemed too painful, unless forced by a superior authority or backed against a wall. And then they’ll complain about having been deprived of that sovereignty they clearly refused to exercise in the first place (that ‘it’s not up to us, it’s the EU’ crap). Like a teenager that boasts he’s an adult but wont get a job and pay the bills because it’s just not fun.

    So yeah, now they’ll just comply, quietly vote this thing in, and try to back out of any implementation, push things back as hard as they can, undermine any action, etc. You can already feel it. E-auctions? Yeah, right.

  • Victor Lazlo

    Just in time to coincide with the casino opening in Limassol.

  • Copernicus

    However good they try to make the law the culture will not change. The biggest borrowers on the island have their loans in Cyprus and their wealth in the UK, Switzerland and Greece. As long as these borrowers distinguish their private wealth (borrowed money to buy property abroad or kept sale proceeds of property abroad) why should the poor suckers who were encouraged daily pre 2013 be compelled to pay the banks.
    Banks should really go after those who are not bring money back to pay their debts and they can collect a few billions.
    I would also suggest the Income Tax disclose which companies have not paid property tax to service banks. The preferred status of public bodies has been abandoned since 2014 for a few privileged borrowers and now it is made legal!
    The official should answer why did they not introduce the laws in the firs place. If it was a political decision does anyone have faith in the system and culture?

  • Bob Ellis

    New reality for borrowers: ‘settle debts or face consequences’ –

    Sums up how broken the banks are when this article admits that before now, there were no consequences for not paying off your debts; with consequences for non payers being a cornerstone of economic principle in the developed world for about a thousand years or more.

  • Colin Evans

    I wonder if this had been brought into force 1 year earlier, would sudden payment of NPLs have been sufficient to prevent the insolvency of the Co-Op Bank?

    • Neroli

      Depends on how many lawmakers and the so called elite have NPLs. Would love to know the outcome of the frozen deposit accounts of the defaulters

  • almostbroke

    Too late ‘the genie is out of the bottle ‘, it would be like trying to turn a giant tanker in the Suez Canal ! They will try to use ‘sleight of hand ‘ ‘smoke and mirrors ‘ misdirection ‘ a powerful tool in the armoury of the ‘chosen few ‘ , which they have used successfully up to this point , but has the day of reckoning arrived at long last !!!!

  • It’s not a new reality, a debt is a debt and must be repaid, but I don’t find the proposed laws viable if there’s little cash flow in the market because all the savings were wiped out with bail-ins after the banks’ massive losses on Greek Government Debt. Even online auctions need cash flow to work, existing foreclosed properties are still sitting there unsold and rotting away according to the statistics. The innovative financial solutions for the debt crisis to serve society and business just aren’t there.

  • costaskarseras

    They must stop hiding behind the so-called strategic nonpayers in order to justify the confiscation of the hard-working and conscientious Cypriots’ family homes. They should have shown zero tolerance towards these speculators right from the beginning.

    There is no end to the suffering of the working people across the world. Once the present Co-op Bank’s hole is somehow patched up, it will appear in another form somewhere else in a few years’ time They will demand more of the same by then and all the family’s silver will have been sold, even the kitchen sink and their austerity measures will be more unbearable.

    This is the transformation of the system of exploitation to a different name. Through the ages, it was called slavery, feudalism, colonialism and now neoliberalism which is showing the same brutality of its previous stages.

    • almostbroke

      And AKEL the commies were not a ‘leading light ‘ in the Co OP debacle , shoulder to shoulder with the rest of the charlatans In the plunder and rape of the bank !

  • Barry White

    Where in the world is Carmen Anastasiades?

  • Cydee

    No mentiion here of Guarantors?