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Distressed borrowers threaten to revolt

As banks are taking defaulting borrowers to court rather than exhausting options under the Cyprus Central Bank’s directive on loan restructuring, distressed borrowers are threatening to freeze loan payments.

revoltASSOCIATIONS representing distressed borrowers have threatened to freeze all loan payments by the end of June in protest over the banks’ practice of taking defaulting borrowers to court before exhausting loan restructuring options.

According to the head of the Borrowers’ Association, Kostas Melas, banks are failing to comply with the directives issued by the Central Bank (CBC) on loan restructuring procedures. .

Following a meeting this week with House president Yiannakis Omirou, during which he briefed Omirou on borrowers’ complaints, Melas said the problems faced by borrowers remain unresolved and relate to lenders’ hostile attitude towards distressed borrowers. He named the Bank of Cyprus, Alpha Bank and the co-operatives as systematically failing to comply with the directives.

“Banks continue to engage courts and arbiters in order to secure the amounts they claim they are owed before attempting to restructure loans,” he said. “The cooperative banks have recently created a restructuring department, but what can they tell us about the cases they refer to arbitration? It is outrageous that the co-ops claim to have started restructuring loans, while referring cases to arbitration as late as June.”

Melas explained that despite a CBC directive urging banks to consider every restructuring option when handling distressed borrowers, they have tried to circumvent due process.

“Let them explain how many borrowers were referred to arbitration since the beginning of the year and why,” he insisted.

Borrowers made loans in good faith based on their income and other circumstances at the time, but the state’s negligence and the banks’ lack of accountability caused the financial meltdown that borrowers are, once again asked to repay, according to Melas.

“This has to stop,” he warned. “All the associations have agreed that unless banks’ attitudes change by the end of June, we will start taking action, and that will be painful, especially to the banks.”

Asked what measures might be taken, Melas revealed that the prevailing thought at this point is to withdraw all cooperation by borrowers, leaving the banks with no option than to take them all to court individually.

“I can assure you, borrowers will be the winners of such an exchange,” Melas said.

Acknowledging this would be far from an ideal solution, he said it was only one of the measures being considered in order to put pressure on the government and the CBC to set the banks straight. Melas argued that failure to comply with the CBC’s directives is against the law and banks could be prosecuted, while the Central Bank also has the power to impose administrative fines.

On his part, Omirou said that the views of the borrowers’ association echo those of the Cyprus Consumer Association, the Bondholders’ Association, the Association for the Protection of Primary Residences, and the Small Business Coalition.

“All these groups feel that banks are not compliant with the CBC’s directives on arrears management and loan restructurings,” Omirou said. “Banks cannot continue to act unchecked.”

Distressed borrowers

Readers' comments

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  • Mark Tyler says:

    Why must this whole Dirty of title deeds keep going round and around?

    The EU/Troika/WhateverBodyUCallIt, which bankrolled Cyprus from going completely Bust…, should put a stop to this nonsense once and for all.

    Issue Ultimatum: Issue all title deeds to those homebuyers who have paid in full..OR…Repay EU Loans which rescued Cyprus..etc..etc. This was, after all, a condition of the Rescue funds in the first place.

    Failing this…i.e. the EU failing this…in conclusion the EU must be comparably responsible for the hideous injustices suffered by the innocents of the Byzantine era which precedes us..

    Shame on the Byzantine EU, its officials..Let them eat something very rotten..

  • andyp says:

    Thanks Nigel. I hope their large fees were not based on a rate per word!

    I remain of the opinion that these banks are not whiter than white. Be it developer mortgages or Swiss franc loans they are far from poor hapless bankers.

  • @andyp at 10:08 pm – Check out the PIMCO report ‘Independent Due Diligence of the Banking System of Cyprus‘:

    The Cyprus banking system and lending practices of Participating Institutions are characterized by a number of idiosyncratic features that differentiate Cyprus from other international banking systems. Understanding these factors is critical to understanding the methodology and findings of this due diligence exercise. These features include:

    – Prevalence of Asset-Based Lending Practices
    – Extended Foreclosure and Legal Resolution Timeline
    – Cross-Collateralization Across Loans and Borrower Groups
    – Provisioning Methodology and Impairment Recognition Practices
    – Prevalence of Loan Modifications in Lieu of Problem Loan Servicing
    – Recognition of Unpaid Interest within Interest Income
    – Reliance on International Banking Operations
    – Lending Practices of the Co-operatives Sector

  • andyp says:

    @Scruffy.

    You may want to look at the letters page in today’s CM.

    Banks have a lot to answer and take responsibility for in my opinion.

  • scruffy says:

    Indeed Janice. Their behaviour was criminal and they are still trying to rob us. Its disappointing that, judging by their flippant remarks on here and other media, some cannot understand the plight that the banks have inflicted on many borrowers.

    I look forward to their comments if they ever fall victim to the criminal banks. I suspect they won’t be so smug then.

  • janice says:

    Well said Scruffy, but don’t forget that the banks paid their developer chums often without express agreement from the borrower – for works not completed. And then, against world trends, increased their margin from 1.5% to 4.5% thereby tripling the interest (and now capital) repayments budgeted for.

    They speculated against us in CHF, and in 2009 – the CHF appreciated by 100%, so the £1 was 1.15 CHF, down from 2.3CHF, thereby doubling the already tripled repayments to 6 times the amount budgeted, and then because we protested, increased their margin to 14%, such that they required 18 times the amount agreed.

    Now they complain the loan was ‘non performing’ and we are all very bad people and they are going to take our UK homes too. How can you deal with such people?

    Complete criminals – I say lock them all up!

  • Scruffy says:

    Very constructive and helpful advice MartynG. What many are dismissing is the fact that the banks were largely involved in the wrecking of the Cyprus economy. Many have lost savings, jobs, or serious loss of income through theses jokers they call bankers. This article is pointing out the fact the banks are not trying to help these people to restructure their loans despite directives from the CBC to do so.

    The banks are not prepared to even make the effort to allow these people to work out a plan that would help them pay something.

    I say Bravo Mr Melas. A few months of no payments will soon change the tact of the banks and force them to take at least some responsibility for putting many of these people in the deep Pooh in the first place.

    If the banks had not behaved in the manner they have, eg giving out loans without the proper checks, loans to family, friends then writing them off, giving millions to companies that were known to be already in arrears, using peoples homes as collateral that were already collateral on someone else’s loan, need I go on. All they care about now is saving their own sorry asses and nothing for the peoples lives they have ruined.

  • Keith says:

    So let me get this straight. Borrowers are not paying back their loans. The banks want repayment, obviously.

    So the borrowers are not going to pay back their loans as a protest? Aren’t they already doing that? That’s the problem isn’t it?

    You couldn’t make this up!

  • MartynG says:

    Two problem areas seem to me to be:

    1. What is the definition of ‘distressed’ – there are several it seems (including Troika-influenced): see below:

    2. Quite a few borrowers (e.g property developers and others able to but not really inclined to ‘service’ their borrowings) I understand are ‘feigning’ distress in order to ‘buy time’.

    My advice (based on personal and property funding in several large, but non-Cypriot, banks over several decades and 3 separate recessions) to anyone who is genuinely in a distressed state I.e. quite unable to service loan interest and/or scheduled repayments and able to prove why – e.g. became unemployed, reduced salary/income, got caught by last year’s Depositor ‘haircut’, significant change in family or personal circumstances – would be to contact the person responsible for ‘managing’ your account(s) (making sure you are talking to a ‘decision-maker’ or ‘key decision influencer’ and NOT being ‘fobbed off’ with a clerk or a ‘paper -Waller’) and arrange an interview at the bank/lender’s premises at a time suitable to you, allowing enough time to get over the seriousness of the situation and, hopefully, discuss and agree remedies acceptable to both the borrowers) and the lender.

    It’s worth I reckon directing those who are experiencing such difficulties to refer to useful Investopedia pages that use simple language to define ‘distressed borrower’ and also various remedies, solutions that might, or might not, be appropriate and/or possible.

    Distressed Borrower

    Additionally, but often not possible as they are, unless you are very lucky!, fee-charging – (at just the time when you may not feel you have enough funds to pay them) there are specialist Financial Advisers – and I do recall there are some who will agree to assist/advise on a ‘results-based’ basis.

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