THE CENTRAL Bank of Cyprus (CBC) yesterday reminded banks and borrowers that partial debt forgiveness remained an option for the restructuring of loans of viable individuals or businesses struggling to make payments.
The announcement came as the CBC governor Panicos Demetriades attended a meeting of the House Commerce Committee where MPs heard that for reasons not quite clear, the option of restructuring loans was not being utilised.
The CBC reminded that last September it issued a directive to credit institutions on the management of arrears, which, among other things, aims to achieve a fair restructuring of loans to viable borrowers (individuals and businesses) experiencing financial difficulties and who cannot meet their contractual obligations.
Under this directive, banks are required to examine and evaluate each case individually and propose solutions, preferably long-term ones, which correspond to the specific needs and economic circumstances of each borrower, said the CBC.
According to the supervisory authority, solutions may include, for example, a reduction in the interest rate, a grace period, lengthening of the repayment period, consolidating various loans into one, and even partial debt forgiveness.
“The latter option can be applied within a broader framework of settlement, if all other solutions of restructuring are judged as unsustainable and provided that the borrower agreed to repay a reduced amount of the balance of the loan within an early and specified time period,” said the CBC.
The central bank further warned that restructuring a loan with partial debt forgiveness should be used with “caution and in very exceptional circumstances in relation to borrowers who cooperate fully and honestly with their bank and provide all information and documents when requested”.