Tough times ahead for NPLs

Financial Mirror (Cyprus) - - FRONT PAGE -

Fol­low­ing the an­nounce­ment of the gov­ern­ment’s plan to pro­tect the pri­mary home and small busi­ness ac­com­mo­da­tion on June 3, to be mon­i­tored by the Cyprus Land De­vel­op­ment Or­gan­i­sa­tion, we are wit­ness­ing the com­ple­tion of the le­gal frame­work re­gard­ing fore­clo­sures and in­sol­ven­cies.

It is now the time for tough de­ci­sions to be made by peo­ple with non-per­form­ing loans (NPLs).

Why do I say this? Be­cause all those af­fected must study all the rel­e­vant leg­is­la­tion and de­cide on a course of ac­tion. So, then, what are their op­tions? For starters, they must first try to reach a mu­tu­ally ac­cept­able so­lu­tion with their lenders for loan restruc­tur­ing. If this is not pos­si­ble they then must ask the Fi­nan­cial Om­buds­man to ap­point a me­di­a­tor in an ef­fort to help the two par­ties reach an agree­ment and re­struc­ture the loan.

If the me­di­a­tion pro­ce­dure fails, then the next op­tion would be the ap­point­ment of an in­sol­vency con­sul­tant. The con­sul­tant will try to es­tab­lish whether the debtor ful­fills the cri­te­ria for pro­tec­tion ac­cord­ing to any of the schemes in­cluded in the rel­e­vant laws.

The con­sul­tant will also de­ter­mine whether the debtor can ben­e­fit from the pri­mary res­i­dence pro­tec­tion scheme. It is clear that a great num­ber of debtors do not sat­isfy the cri­te­ria of ei­ther the in­sol­vency or the me­di­a­tion sce­nario.

The only so­lu­tion for peo­ple who do not meet the cri­te­ria is to try and se­cure a good loan restruc­tur­ing deal with their banks. Banks will most cer­tainly go ahead with a fore­clo­sure pro­ce­dure on the mort­gaged prop­erty, if such a deal is not pos­si­ble.

Of course it is now clear that the fore­clo­sure and auc­tion pro­ce­dure will be lengthy. If debtors ex­haust all dead­lines as set per the leg­is­la­tion, we hardly ex­pect any fore­clo­sure to ma­te­ri­alise in less than five years.

Are NPLs, el­i­gi­ble for pro­tec­tion by these res­cue schemes, bet­ter off with these schemes or with a good restruc­tur­ing ar­range­ment?

Prob­a­bly they will be in a bet­ter po­si­tion if they agree to a loan restruc­tur­ing with their lenders. Se­cur­ing a sen­si­ble restruc­tur­ing will en­sure a bet­ter bank-client re­la­tion­ship, in­ter­est rates might drop, with lower in­stal­ments and what is most im­por­tant is that costly trips to the courts will b avoided and le­gal fees and other ex­penses will be elim­i­nated.

Con­clud­ing, I would like to ac­knowl­edge that each case is unique and re­quires a care­ful study of its par­tic­u­lar­i­ties. In any case, this is ac­tu­ally the best time for a thor­ough study of the facts; it is time to prop­erly utilise the in­de­pen­dent ad­vi­sors, so that, non-per­form­ing bor­row­ers can take the best de­ci­sions.

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