By Angelos Anastasiou
BORROWERS Association president Costas Melas yesterday lambasted banks for misleading borrowers into agreeing to litigation procedures before loan-restructuring options had been exhausted.
Following successive meetings with the Archbishop, the Banks’ Association and the Governor of the Central Bank (CBC) Melas accused banks, singling out co-operative credit institutions in particular, of defrauding uninformed borrowers who have non-performing loans (NPLs) into accepting the start of litigation procedures, instead of attempting to restructure the loan.
According to Melas, by making suspicious promises to borrowers such as offering two-year grace periods that will commence after the court has issued a ruling, or by misleading them with outright false information such as that restructuring a loan can only be done in court, the banks are seeking speedy court rulings to seize a borrower’s property or other collateral. The court’s decision can subsequently be executed at the bank’s discretion, regardless of offers for grace periods made earlier.
This practice, the Borrowers’ Association said, contravenes the Central Bank of Cyprus’s “Directive on Arrears Management”, which sets out clear and detailed procedures to be followed by banks in restructuring NPLs. The directive mandates litigation to be the banks’ last resort, only to be employed when all other means of restructuring a loan – specified in the directive – have been exhausted.
Melas claimed to have received numerous complaints from borrowers in writing, some of whom reported having raised the issue with their co-op, only to be told that the Central Bank’s directive did not apply to co-ops. “This practice is unacceptable and must stop immediately,” he said.
“A code of conduct has been issued by the Central Bank of Cyprus regarding the restructuring of NPLs, in which litigation is the last resort after all other options have been exhausted. Compliance with the code is mandatory and thus the banks must conform to its terms. If the code is implemented, everything will go smoothly.”
Melas also warned that adherence to the procedure of restructuring NPLs, as specified in the Central Bank directive, was one of the government’s commitments under the bailout agreement. As such, it is scheduled to be monitored by the troika, with banks to be held individually accountable for non-compliance.
After the meeting, the Archbishop said that he fully endorsed the Association’s outlook on the issue, and that he would study the Association’s views, delivered to him in writing, carefully.
The Borrowers’ Association head also expressed his satisfaction at the direct contact with, and willingness for cooperation shown by, the Banks’ Association, since both sides share the goal of a mutually beneficial resolution.
According to the Melas, the Banks’ Association has pledged to take “corrective measures” on the issue.
“In the next few days the Borrowers’ Association will forward written memos containing its views to the Banks’ Association and the Governor of the Central Bank with a view to resolving the problems facing both loan-takers and banks, as resorting to the courts benefits none of the parties involved.”