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Central Bank blasted on FX loans

central bank of CyprusTHE BORROWERS Association slammed the Central Bank of Cyprus (CBC) on Tuesday accusing it of not properly regulating banks when they were giving out loans in foreign currency.

“Where was the Central Bank when monetary policy reports mentioned an increase in loans taken out in Swiss francs? When amongst other things they could see that borrowers were overlooking the risks of the exchange. Did the finance ministry know this? If yes, and since they did nothing they too committed crimes.”

The issue concerns 3,000 borrowers that took out loans in foreign currency – mainly Swiss francs but they saw their debt increase 35 to 40 per cent after the exchange rate worked against them.

Of the 3,000 borrowers found to have received credit in foreign currency, approximately 40 per cent – €600 million in 1,200 accounts – were Cyprus residents, the Central Bank said on Monday.

According to the Central Bank’s stats report on the issue, 98 per cent of foreign-currency loans were made by the Bank of Cyprus, Hellenic Bank, and Alpha Bank.

The same report estimated that, if the loans were to return to the original exchange rate, the Bank of Cyprus stands to bear losses of €147 million, Hellenic Bank €11 million, and Alpha Bank (only from housing loans) €10 million.

Total losses across the Cypriot banking system could reach €250 million, the report found.

During a House finance committee on Monday, the CBC said the problem could not be addressed through legislation after deputies said they would seek to legislate solutions for borrowers, pegging the exchange rate to the point it was on the date the loan agreement was signed thus burdening the losses on the lender.

The association said the CBC was proving, yet again, that it wasn’t working for the benefit of national economy and maintaining financial stability but rather was facing the issue with the borrowers “superficially”.

“It would be good if the CBC became seriously concerned with the major responsibilities it has on the state of Cyprus’ economy.”

Moreover, the association accused the CBC of never taking the necessary steps to ensure that a circular they sent out to banks on October 11, 2006 outlining the risks to borrowers in taking out loans in foreign currency was actually adhered to.

Also disagreeing with the finance minister Harris Georgiades on restructuring loans they said “we insist that restructures are easy and can be done correctly in a way to benefit both sides, as long as there is good will from the banks.”

The association also sought to wonder if banks need three years to learn how to restructure loans and to what extent it would be fair if borrowers were burdened with the cost of the delay, appealing to both the CBC and the state to find a solution for the troubled borrowers, bond holders, and depositors that had a haircut.