By George Psyllides
A CENTRAL Bank (CBC) draft directive sets strict lending criteria that will come as a “shock” to borrowers, it emerged yesterday.
The most important change, according to the Cyprus News Agency, is that the value of the collateral would not longer be the main criterion, as it was up until now.
Banks will now be looking at an applicant’s ability to repay the loan and strict checks will be put in place.
Chairman of the bank association Marios Clerides said the new criteria could “come as a shock to borrowers.”
Applicants must provide all the necessary documentation concerning their revenue and any unjustified discrepancies will lead to immediate rejection.
Loans from other banks must also be declared, together with repayment, collateral, and other details.
For housing loans, applicants would have to submit sales contracts, and title deeds, building and town-planning permits, maps and plans of the property being used as collateral.
“During the assessment of the customer’s ability to repay the loan, the credit institution must put emphasis on the revenues and future inflows,” the draft says. Any kind of security must be considered as the alternative way out for a bank and not the main way of repayment.
The directive also lists the duties of the appraisers who will decide whether to approve a loan or not.
Their recommendation must include a detailed analysis of the customer’s ability to repay the loan and full justification in case of a positive outcome.
The directive sets the value for a housing loan – first home – at 80 per cent of the cost of the property and 70 per cent for other cases. Instalments are set at 35 per cent of a borrower’s monthly income.
Financing developers and projects is considered risky and personnel dealing with such cases should be experienced and be able to assess market conditions, which must be favourable. The loan must be repaid 12 months after the project is completed.