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Financial Ombudsman says Co-op account set offs largely unlawful (Updated)

By Stelios Orphanides

President Nicos Anastasiades on Thursday instructed the financial ombudsman to investigate how thousands of Co-op customers unknowingly had their deposits offset against their non-performing loans, some of which were on the point of being restructured.

Anastasiades asked Ombudsman Pavlos Ioannou to “thoroughly investigate the matter and submit a full report” while Finance Minister Harris Georgiades asked the Cooperative Asset Management Company – the legacy Co-op – to verify the procedure that was applied and be prepared to act to rectify probable mistakes.

Ioannou told public radio CyBC earlier on Thursday he was considering referring cases of Co-op customers who had their deposit accounts set-off with loans to the attorney-general as the formerly state-owned bank may have acted unlawfully in thousands of cases.

Ioannou, was speaking four days after the completion of the acquisition of the Cyprus Co-operative Bank’s operations by Hellenic Bank. He said there were around 2,000 cases where this action was justified as there were clauses in the loan contracts which customers had signed allowing this action by the bank.

However, in another 16,000 cases, the former Co-op acted “without informing and advising customers in time to avoid problems”, hence upsetting the cash flow planning of both households and companies, he said.

The Co-op had combined the balance of deposits accounts with those of non-performing loans, including restructured loans still in process and those in which the borrowers were about to sign a restructuring agreement, Ioannou said.

The action taken by the former bank, owned to 99 per cent by the government, led to “tragic” results which once more blemished the image of Cyprus’ financial sector abroad, he added.

“It is not advisable for the Cypriot banking system to cause this type of inefficiencies,” he said.

“There were offset cases affecting amounts received by people with disabilities or recipients of government aid to buy medication,” he said.

Other cases concerned cash companies deposited on provident fund accounts belonging to their workers, which were used to set off loans extended to them.

Hellenic Bank has said it was not responsible for the mess and said that it would help affected customers either through opening accounts or the issue of chequebooks.

A Hellenic Bank source said on Thursday that the second largest lender on the island would determine on a case-by-case basis whether other facilities were warranted, including overdrafts.

In a written response later on Thursday, the legacy Co-op said the decision to set off deposits with loans was taken after receiving opinions concerning both loans contractually backed by deposits and loans in arrears, where a banking principle was applied.

“The transfer of assets of the Cyprus Cooperative Bank to Hellenic Bank combined with the simultaneous revocation of the licence to operate as a licenced bank by definition, eliminated the possibility of accepting or maintaining deposits as well as operations related to credit facilities such as current account and credit cards,” the Cyprus Asset Management Company, said in an emailed statement.

“A number of loans and credit cards that have not been transferred to Hellenic Bank have been therefore terminated,” said the company, which manages €8.3bn of former Co-op assets including €7bn in non-performing loans.

“Accounts that have not been transferred to Hellenic Bank and have been terminated, had a negative balance and were non-performing or the owner of the account was directly or indirectly linked to a non-performing loan or the owner of a non-performing account,” the company said. “Such accounts are not included in the deal with Hellenic Bank and have remained at the Cyprus Asset Management Company as loans to be collected”.

It also added that set-off accounts in arrears affected deposit accounts irrespective of the amount and included fixed deposits and notice accounts totalling over €2.5m, the state-owned company said, adding that the measure did not affect deposits held on current accounts.

“Accounts that were set off were tied down on June 26,” the company said.

It added that it was in talks with Ioannou to handle the issue and it was ready to look into complaints about unintended mistakes and asked former Co-op customers to contact it at [email protected].

 

 

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