The Central Bank of Cyprus (CBC) on Monday released an announcement addressing recent media reports, concerning the European Banking Authority’s (EBA) peer review report on the supervision of creditors’ treatment of mortgage borrowers in arrears, under the Mortgage Credit Directive (MCD), which was published last December.

The CBC said that it “seeks to provide clarifications” on a number of points. Firstly, the CBC said that itself, along with the six other supervisory authorities evaluated, has been found to have implemented the relevant guidelines provided by the EBA.

It added that “the methodology employed by the CBC enables the identification of breaches and timely measures to address issues related to borrower protection”.

Moreover, the announcement noted that the report acknowledged national supervisory authorities that combine preventive supervision for financial stability with oversight of financial behaviour by creditors in specific sectors. The CBC is recognised as one of these authorities.

The EBA report emphasised that financial ethics supervision should not undermine preventive oversight. “In Cyprus, this balance has been largely achieved, as evidenced by the data,” the CBC said.

As a result of the CBC’s approach, the announcement continued, a number of achievements have been realised.

“Despite a high inflation environment, Non-Performing Exposures (NPEs) within the banking system have decreased to below €2 billion at the end of 2023, compared to €23 billion or 45 per cent of total loans in 2017,” the CBC stated.

“Despite interest rate increases in recent years, loans with an increased risk of default (Stage 2) have seen a 17 per cent reduction in 2023, indicating the success of CBC’s supervision,” it added.

Furthermore, it noted that “systematic CBC oversight has significantly increased restructurings and renegotiations of NPEs. In the first eleven months of 2023, restructuring and renegotiation of loans amounted to €4 billion, surpassing the total amounts for 2021 and 2020”.

What is more, the CBC said that these results have been attributed to the central bank’s measures and approach.

These include the establishment of the Financial Conduct Section (FCS) in November 2020 as a monitoring and supervisory measure for creditors’ financial behaviour. The FCS investigates complaints from the public and supervised institutions regarding possible legislative violations falling under the CBC’s jurisdiction.

Moreover, the CBC said that the FCS has been strengthened over the past year and a half through the recruitment of additional staff, enhancing its supervisory intervention.

“This was acknowledged by the EBA leadership in a recent teleconference with the CBC on the matter,” the announcement stated.

Furthermore, the CBC made of the implementation of a directive on the management of delays in 2013, including the relevant behaviour code. It added that on-site checks have been systematically conducted, with recent ones being carried out in 2023.

The CBC also reassured the public of its “commitment to fulfilling its responsibilities and purpose”.

“The recommendations in the report regarding the need to review available resources and the spectrum of supervisory tools are already under evaluation,” it explained.

“This encompasses monitoring compliance with the directive and identifying problematic behaviours borrowers may face,” the CBC concluded.