- Cyprus Property News Magazine - https://www.news.cyprus-property-buyers.com -

Curing the non-performing loans disease

non-performing loansCOUNTRIES under economic adjustment programmes have adopted various methods to tackle the problem of non-performing loans, giving over-indebted households and businesses the chance to pay down debt.

For example the Bank of Greece has announced a series of measures, which include: lower instalment payments, lower interest, considerable grace periods, temporary deferment of instalments, extending the loan repayment period for households and businesses, or allowing home-owners to turn tenants in their primary residence.

The main methods employed by the Bank of Greece to restructure loans are:

In Ireland, authorities have drawn up a list specifying the ‘reasonable living cost’ for households (families with children, couples etc.) This list outlines monthly expenses for food, housing, healthcare, education and so on. An average reasonable cost of living has been calculated, which lenders and borrowers refer to for debt settlement. The list cannot be questioned as it is based on data furnished by the country’s statistical agency.

In addition, Irish authorities have devised the concept of “cooperative borrowers” (i.e. borrowers who do not conceal information – such as income, assets etc. – from banks). By defining what a cooperative borrower is, a bank can no longer arbitrarily deem a borrower as being non-cooperative and therefore refuse to restructure his or her debt. Thus banks are obliged to examine each case separately, provided certain basic conditions are met. Moreover lenders may write off large chunks of debt once they find that a loan cannot be serviced due to the lack of income (or any prospect for income) on the part of the debtor.

In Spain, a house may be transferred to the bank, and the debtor may continue to reside in the house as a tenant for as long as it takes him/her to repay the debt. During the leasing period in question, ownership of the immovable property passes to the bank, and the borrower-tenant can repossess the house upon repayment of the loan at the period end. This is known as a leaseback.

The banks and the government have agreed a code of conduct, which all lenders have adopted. Eligible for these adjustments are persons whose income places them below the so-called ‘social exclusion’ line.

Spanish banks likewise grant grace periods, loan repayment extensions, etc. In addition, where the value of a property is currently lower than that at which it was purchased, the difference is split among the bank and the borrower. In the most extreme cases, a bank will take possession of a house but allow the borrower to keep residing there for two years as a tenant.

These are the sort of sensible solutions to which we here in Cyprus should look to if we really want to escape the vicious cycle of depression.

George Mountis BSc, MSc, Ph.D
Director, Business Development
Emergo Wealth
2, Demetrakopoulou str., 1090 Nicosia Cyprus
P.O. Box 25193, 1307 Nicosia, Cyprus
Tel.: +357 22 449122, Cell: +357 99 494142
Fax: +357 22 780589