STOCKWATCH today published a draft directive from the Central Bank of Cyprus that will introduce much stricter procedures for the granting of loans.
Although the Directive is still being discussed, it is clear that the Central Bank intends to correct the ‘idiosyncrasies’ in the lending practices of the banks by ensuring that they become professional and diligent when granting loans.
The basic philosophy of the draft Directive is that lending has to be based on a borrower’s ability to repay a loan rather on collateral as highlighted in the Pimco report.
Banks will now have to consider the income of borrowers and loan repayments should not 35% of the monthly income of private borrowers or their estimated monthly savings.
For a loan to purchase a first home, the loan should not exceed 80% of the property’s value and for other properties the loan should not exceed 70%.
Private borrowers will have to provide a wealth of information, including confirmation of their employment, originals of the last quarter’s wages/salary payment slips, bank statements, income tax certificates, certificates of tax payments for the last two years and other documents.
For loans in a currency that is different to the borrower’s income, credit institutions will be required to provide borrowers with adequate information regarding the risks involved in foreign currency lending to enable them to take well-informed and prudent decisions.
When lending to developers, credit institutions should ensure that its staff have the appropriate experience, qualifications and expertise to deal with applications. Furthermore the institution will have to ensure that the loan is used for its intended purpose and that it monitors the progress of work.
Further reading
Draft Directive Issued to Credit Institutions on Loan Origination Processes.
@NicW – I don’t believe the loan to value ratio only applies to residents – I imagine it will apply to any EU national wishing to take out a loan.
I have to agree with the directive from the Central Bank, loans were granted willy nilly which in turn has led to its own economic downfall. There are several people I know of who took out more than one housing loan (I’m not talking developers here) and simply couldn’t afford the loan repayments before the economic crisis. Their properties are now empty having given them back to the bank/developer and returned to their home country. A vicious circle!!!, one which is clearly not the developers fault nor other residents fault who have to reside next to run down/unmanaged properties.
Lets hope they introduce “an agreement in principal” loan system which gives reassurance to both buyers and the vendors at the purchasing stage.
One is assuming the loan to value ratio quoted in the article refers to residents of Cyprus only (those that have been resident for 5 years or more)?
I’m sure there will be some kind of “work-around” for developers as the new directive appears to only apply to new loans and not re-mortgages and extensions!!
With the exception of your last sentence Andrew I Agree.
They had no faith. They were stupid and just as guilty, if not more so, as the person who realised there was an opportunity here.
As I have said before this was a coordinated scam. A “cunning plan”.
Banks did not lend to developers, secured on a developers collateral. Banks gave loans to developers using fictitious collateral. Imaginary future homebuyers were expected to provide collateral.
Buyers were subsequently sold property without ever being informed of developer encumbrances placed on their new homes. A developers ability to repay his loan was therefore unimportant to the Banks of Cyprus.
Banks put their faith in ledgers and not in the law. For them there is no right or wrong, just profit or loss.
The other side of this coin would be laws relating to property conveyancing. When will they be introduced and how will compliance be enforced and breaches of compliance punished by the courts?
But even of more importance to those of us who have been defrauded in the Great Title Deed Fiasco is the question: How will the Central Bank of Cyprus, the banks, lawyers and parliament bring about a resolution which will deliver justice retrospectively? KD.
Dear Adrian
Sorry and all that BUT I have just written a Book called now how`s THIS for a good Idea a “Book for Dummies and Banker`s” which is probably the same as yours, Mine has about three pages, which should cover everything don’t you think. Cheers
Maxwell
I am considering writing a book and think that I would release it in Cyprus. I am calling it “Banking for Dummies”.
At least this confirms how we got here.
Some years ago we heard the Supreme Court having to state the duties of a lawyer. Now one for the Bankers.
Unbelievable. No believable.