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Saturday 11th July 2020
Home News Loan sale bill passed by whisker

Loan sale bill passed by whisker

Loan sale bill passed by Cyprus parliamentPARLIAMENT on Thursday gave the nod to a bill governing the sale of loans by banks to third parties – passage of which was a precondition for the release of the last aid tranche to Cyprus.

The item passed by 26 to 25 votes thanks to the ‘ayes’ from ruling DISY and opposition DIKO. Voting against were AKEL, EDEK, the Greens, EVROKO and independent Famagusta MP Zacharias Koulias.

Under the new law, loans may be sold only to investment or hedge funds licensed and registered in the Republic, and thus subject to all local laws and the jurisdiction of Cyprus courts.

In addition, the Central Bank may at its discretion forbid the transfer of debt to third parties, for reasons of national security – a clause inserted to allay fears that Turkish concerns may gain a claim on Cypriot assets.

The new law affords debtors the right to bid to buy back their loan at a discount, after it has been deemed non-performing by the lender, but before it can be sold to third parties like investment funds.

But a debtor’s bid shall not be binding on the bank, according to a last-minute amendment.

Individual borrowers will be notified of the bank’s intent to sell their loan – this also applied previously – and given 45 days to make the bank an offer to pay back their loan.

Following notification, a borrower may make an offer only once.

In a professed bid to protect debtors, DIKO had earlier toyed with the idea that a bank should be forbidden from transferring a loan to a third party at a price lower than that quoted by the borrower.

In addition, such a proposal might have been seen as state interference with contracts between two parties – the debtor and the lender – in the private market.

Cyprus’ international lenders, known as the troika, opposed the loan buyback scheme, arguing it would lead to moral hazard, encouraging even those who can afford to repay their loan to let it go unserviced so they can then buy it back at a discount.

DIKO – which held the swing vote in the House – had warned they would vote against the bill as a whole unless debtors were given a say on the sale of their loans.

Re-jigging the wording of the amendment – where a bank is now not bound to accept the debtor’s offer to pay back a loan – allowed DIKO to maintain the pretence that some protection is still afforded to borrowers.

It remains to be seen if the final version is to the troika’s satisfaction.

The island’s international creditors had made it clear what without the bill Cyprus would not be eligible for the next – and most likely last – bailout tranche.

Having passed his party’s amendments, DIKO leader Nicholas Papadopoulos offered a pragmatic analysis:

“We in Cyprus are champions when it comes to non-performing loans. We are here today because we want to exit the economic adjustment programme in May 2016, not May 2026.”

The bill stipulates that the sale of loans to third parties is governed by existing foreclosure-related legislation, which affords debtors several ways to challenge repossession proceedings.

It’s understood that on selling loan packages, banks will be able to bundle good loans along with the bad – as a means of making their package more attractive to investment funds.

Some object that borrowers who are consistent with their payments will thus fall prey to speculators.

But one MP, speaking on condition of anonymity, told the Cyprus Mail this should not be a concern because the same terms of the initial loan agreement will apply once a loan is transferred.

“So if you’re already servicing your loan, what does it matter if you’re dealing with a Cypriot bank or a foreign fund?” he said.

For the troika, the primary driver is slashing the high-level of non-performing loans – accounting for about half of all debt – thereby boosting banks’ liquidity and allowing them to recycle some of the freed-up cash back into the economy in the form of consumer loans.

At least that’s the theory.

But as the same MP conceded: “We’ve gone through the motions. Now we’ll see how it plays out in the real world. Will foreign investment funds now come in and scoop up all the bad loans, as many claim?

“With so many bad loans out there, and with the housing market in a slump… let’s just see.”

The bill also provides for the potential – this being the operative word – establishment of a national asset management agency (NAMA). But that is more likely than not a damp squib, as the text of the bill states that the creation of a NAMA, which requires a great deal of capital, must not be to the detriment of public finances – raising the question as to how well it would be funded.


  1. Surely insisting they can only be sold to firms registered and licensed in the republic is contrary to some EU trading legislation. Would it not come under restrictive practices. Stranger things have happened however.

  2. God forbid if the long suffering borrowers derive any conceivable benefit or advantage from being offered the option of a ‘discounted loan’! Whatever next! On the plus side, at least the option is being considered. A few strategic NPLs perhaps, but a small price to pay, as there is no justice in a 3rd or 4th party deriving financial gain at our expense. This especially for something that was not of our making, but rather that of the banks (and some developers and POAs). Many borrowers are stuck in a state of anguish, not able to move on or develop their lives and careers, knowing their life long assets are at risk of total loss. A bank manager only has to worry about his bonus, and whether the Troika will pay out!

  3. If Cyprus can satisfy TROIKA on this matter and this is the final loan payment from TROIKA what will happen then. Will Cyprus revert back to a lawless state again. It will be interesting to see.

    What will also be interesting would be the first repossession in the UK after the 1st Jan 2016 when all rights to claim against the banks has expired.

    (Editor’s comment: I did ask someone whether Cyprus would revert – in their opinion no because Cyprus would reap the rewards and benefits of the changes.

    Banks have already won cases in Cyprus and have had the court judgements enforced in the UK via an EU Enforcement Order. As a consequence, a number of people have charges placed on the UK property.)

  4. Ha Ha Ha Ha Ha. my sides are hurting now

    Under the new law, loans may be sold only to investment or hedge funds licensed and registered in the Republic, and thus subject to all local laws and the jurisdiction of Cyprus courts.


  5. Never mind all the gobbledygook – in plain simple terms does this all mean that some developer who owes 20,000,000 Euros can get away with paying back a lot less!!? If that be the case its a licence to kill.




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