Cyprus Mail
Business Cyprus

Banks face sanctions if they refuse to reschedule loans

Central Bank

By Elias Hazou

THE Central Bank of Cyprus (CBC) has warned commercial banks that they are liable to sanctions should they refuse to reschedule loans.

Banks found not to implement a relevant CBC directive, issued on September 9, concerning arrears management and debt restructuring, could be liable to steep fines, the regulator said in a statement.

Non-compliance with any of the CBC’s directives can entail a fine on a bank ranging from €1,000 to €500,000 per violation. In the event of continued violation, the regulator additionally has the authority to impose an administrative fine between €100 and €50,000 per day.

The September 9 directive instructs commercial banks and cooperatives “to adopt a constructive approach to the restructuring of debt with a view to agreeing fair and sustainable solutions.”

Under the directive, banks had until the end of September to put in place internal dispute resolution mechanisms in the form of appeals committees. These are separate from bank committees responsible for the approval of loans and restructurings.

Most banks, it’s understood, have yet to set to up such mechanisms.

The CBC urged lenders to “exercise every reasonable effort to cooperate with borrowers and to obtain all the necessary financial information that will enable them to carry out a thorough assessment of borrowers’ ability to repay their instalments.

“Banks and cooperatives are obliged to implement a fair and viable pricing policy which entails charging the minimum possible fees and lowering the interest rate so as to be in line with the repayment ability of borrowers.”

The CBC issued the warning/reminder after having received several complaints from bank clients.

In recent months banks have reportedly reduced loan repayment instalments but raised the lending rate. Anecdotal evidence suggests that in some cases loans in arrears are being charged up to 9 or even 10 per cent interest.

CBC spokesman Aliki Stylianou said the ultimate objective of loan restructuring is to lower the cost of lending to borrowers.

In the event a bank refuses to negotiate rescheduling of a loan, a client can apply to the lender’s internal appeal mechanism. If a client believes that a bank’s appeal mechanism has still not engaged him or her, he or she can then file a complaint to the CBC’s Bank Supervision and Regulation Department.

The CBC stressed that it shall not act as an intermediary or arbitrator to ensure a borrower gets a fair pricing policy – only that it will look into whether or not a bank has made an effort to reach a reasonable compromise with a borrower.

Responding to the CBC’s prodding, the Association of Cyprus Banks said yesterday that its members are working with borrowers to reschedule and restructure loans.

The relevant CBC directive pertains only to “viable borrowers”, the association said in a statement. It in turn urged clients wishing to negotiate their loans to furnish all required documents.

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