The finance ministry on Monday issued a decree ordering all licensed banks in Cyprus to suspend the collection of loan installments – including interest – until the end of the year.
The decree comes a day after parliament passed the relevant government legislation, part of a raft of actions to assist individuals and businesses ride out the storm amid the coronavirus fallout.
According to the ordinance, those eligible for the suspension are individuals, public-law entities, self-employed persons and corporations who as at February 29 of this year were not more than 30 days behind on their installments per their loan agreement.
The decree covers the period March 30 to December 31, 2020.
It’s understood that already on Monday banks were receiving applications from borrowers.
Interested borrowers may file their application to their bank via post, email or fax.
Under the scheme, the sum of the suspended installments on the principal, as well as the interest for the period in question, will not be immediately due on December 31.
Once the decree expires, installment and interest payments will resume, and at the same time the repayment period is considered to have been automatically extended by the nine-month period.
The finance ministry said these temporary measures apply to financial organisations such as banks, credit acquisition companies, loan management companies, insurance companies and the Land Development Corporation.
But the measures were panned by main opposition Akel, calling them another giveaway to banks in the guise of helping borrowers.
In a statement, Akel leader Andros Kyprianou said that not only would debtors not benefit, but at the end of the day they would be charged compound interest on the deferred interest accrued for the nine months until the end of the year.
In parliament a day earlier, Akel had proposed that banks should charge zero interest rate for the duration of the suspension.
“They told us that the European mechanisms would not accept this,” Kyprianou said.
“Next we appealed to the political parties to adopt our proposal that the deferred interest payments should not be compounded but rather transferred to the end of the repayment period. In this way the impact on borrowers would be as minimal as possible. They didn’t agree to this compromise either.”
Akel also complained that another one of their ideas was rejected: namely, that the suspension of installments be made automatically for all debtors, and then allow any borrower wishing to continue paying their installments normally to notify the bank in writing.
This proposal, too, was refused, with a counter-proposal prevailing that borrowers must contact their bank and ask for an installments suspension and to justify their request.
Meantime on Twitter, a lively discussion unfolded between Central Bank governor Constandinos Herodotou and others.
Herodotou posted that the levying of compound interest was mandated by regulations in order to prevent a loan being classed as non-performing.
He cited one hypothetical example, where on a €100,000 loan with a 10-year repayment period and three per cent interest, the compound interest in total would not exceed €55.
To which another commenter responded, that large corporations employing many people had far larger loans, meaning that the compound interest charge would be higher than €55.