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Pressure on non-performing loan recovery

pressure on Cyprus
©2013 Denis Lopatin; ©2013 , Splendum

THE TROIKA of international lenders is increasing the pressure on delinquent borrowers through the updated MoU issued following the conclusion of fifth review of the Cyprus €10 billion bailout.

The lenders’ suggestions come as non-performing loans (NPLs – loans in arrears over 90 days) in the Cyprus banking sector reached €27.5 billion in May.

The Troika, comprising the European Commission, the European Central Bank and the International Monetary Fund (IMF) believe that the way forward with regard to the containment of the rising NPLs is debt restructuring through the bank’s internal restructuring units under the guidance of the Cyprus Central Bank (CBC).

However Cyprus lenders (notably the IMF) believe that the extent of the rise in NPLs is partly due to strategic defaults and delinquent borrowers, who refuse to service their loans despite having the ability to do so.

According to the fifth update of the MoU, the CBC will issue revisions of the Arrears Management Directive and of the Code of Conduct on Arrears Management by end-November which will assist only households and small and medium-sized enterprises.

“The revised Code of Conduct will target only households and Small and Medium-Sized enterprises,” says the MoU.

The amendments will include specific procedural steps and precise deadlines attached to them, facilitating swift procedures within an appropriate time limit with clear start and end date to the restructuring procedure.

The CBC will also incorporate in the Code of Conduct and definition for a unified measure of viability based on a reasonable standard of living as defined in the insolvency framework.

Furthermore, “to ensure that the banks are held accountable for offering sustainable restructuring solutions,” the CBC will issue specific guidance to banks on operational and financial indicators, such as the ratios of proposed, concluded and successful restructurings as well as on tools to determine the capital cost of restructuring solutions by the end of October.

The MoU stipulates that legal amendments to the law on financial ombudsman will be adopted in order to clarify that the responsibility for assessing compliance with the Arrears Management Directives is not transferred to the mediators but remains with the CBC.

However the updated MoU features elements that will increase pressure on delinquent borrowers.

The Cypriot authorities are called on to allow lenders to obtain adequate updated information on the financial situation of delinquent borrowers under sufficient safeguards via court order if necessary.

For this reason, the authorities will engage an independent legal consultant to provide a report by end-October to identify the needed legal amendments. The authorities will develop a time-bound action plan by end-November and start its implementation by December.

Furthermore, the authorities with the assistance of an independent legal consultant will prepare a study by end-October and a time-bound action plan by end-November for removing impediments for lenders to file for, and obtain, an attachment of financial assets and earnings of delinquent borrowers as well as to realise such attachment to satisfy their claims under sufficient safeguards. According to the MoU, the implementation of this action plan will start by December.

Market for distressed assets

Based on the MoU, “in order to encourage a market for distressed assets and to facilitate the issuance of securities by securitisation vehicles, the authorities will allow and facilitate lenders to transfer existing individual loans together with all collateral and securities to third parties at minimal transaction costs without having to obtain the consent of the borrower.”

“Any information obligation of the creditor should not be an impediment for the transfer and or securitisation of loans,” the MoU adds.

With this objective in mind the MoU notes that the Cypriot authorities will establish a task force, consisting of relevant stakeholders from the public and private sectors, which will finalise an assessment of existing impediments and of required legislative amendments by end-November. The assessment will include a review of the regulatory framework for non-bank third parties.

The identified impediments will be removed and legislative amendments made by the end of January 2015.

– Cyprus News Agency

Further reading

Memorandum of Understanding on Specific Economic Policy Conditionality (Fifth review)


  1. Well I’m afraid I DO see it as the Troika’s responsibility to be concerned with when you consider two extremely important facts:

    Fact one – it should be a lot easier to chase down 20 individuals with lots of money and extra property assets than 20 thousand without – some of whom don’t even have a property to show for their loan!

    (Amalgamated) Fact two – the loans were mis-sold and the risks were not made apparent, the lawyers acted on behalf of the banks and not the clients and much of the lending massively irresponsible (people in their late 50’s on less than £20k per annum being offered £220k CYP?)

  2. I don’t see it is the Troika’s place to be concerned with individuals contracts for purchase of goods, in this case property. I suggest their concern is for the loans being made to Cyprus to be made in an environment that enables Cyprus to eventually return to profitability and again stand on its own two feet. Any personal issues with purchases perhaps are viewed as to be addressed through the relevant legal framework. The Troika’s interest is in ensuring EU taxpayers cash is not squandered without seeing some benefit in terms of sovereign debt reduction and fiscal prudence.

    Agreed it will be a big ask in a place like Cyprus with such a dependant society but it must be seen to be done. It is however their place to try and ensure that EU values are applied by each state. I wait for the next period of rhetoric and ‘artful ways’ that we will be subjected to not to mention the ‘blame game’.

  3. The E.U. handling of this crisis is shameful.

    Developer’s ‘personal assets’ should be seized – and if the E.U. were to do it’s job as a governing body properly – they would have been long before now. It’s a biblical crime and one (as I’ve said many times) will eventually sow the seeds of civil unrest.

    I suspect it’s got more to do with the fact that many of these people have sufficient dirt on each other to look after one another’s interests rather than it being a ‘fair’ system. There is NOTHING fair about ANY of it.

  4. @Nigel

    Are you aware of any members of the Troika subscribing to or are being fed with these articles namely CPN?

    If not perhaps you could uncover some official drop boxes so contributors could enlighten them to the reality.


  5. Troika bully tactics.

    Troika is only concerned in safe guarding the interest of the Cyprus bailout proposals and guarding the interest of the EU members. How about the concerns of people who have been duped and crooked into departing with hard earned money purchasing property in Cyprus, NO MENTION.

    How about consideration to the purchase of Cyprus property with no title deeds,N o mention of crooked lawyers, banks, developers, government officials. No mention of fully paid clients with incomplete developments and some developments not even started but paid for in full. NO MENTION

    Troika need to understand the basis, why people are extremely concerned and cannot afford their mortgage payments and if so making payments into a bottomless black hole.

    Troika need to understand the problems with mortgage NPL and incorporate a framework that will work to satisfy all concerned in the way people can return and pay their mortgage at a affordable level minus any FX loan (Swiss franc) and compensate losses to date in the mis-selling sage. Good starting point.

    Cyprus is in a mess.

  6. @George on 2014/08/22 at 10:26 pm – Unfortunately a developer’s personal assets cannot be seized. However, his company’s assets can be seized.

    (Hearsay has it that money has gone to the Cayman Islands and the Isle of Man.)

  7. Sort out the title deeds and people will service if they know they own the properties. Go for the developers personal assets first including Swiss bank accounts. Then finally repossess.

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