Banks get green light for sale of dis­tressed loans

Financial Mirror (Cyprus) - - FRONT PAGE -

The Cab­i­net has ap­proved a bill now headed to par­lia­ment that will safe­guard the rights of bor­row­ers, but also al­low banks to sell their port­fo­lios of dis­tressed loans of up to EUR 1 mln to high-risk in­vestors.

The leg­is­la­tion was sub­mit­ted House on Fri­day.

This had been one of the fi­nal out­stand­ing prior ac­tions as set out in the mem­o­ran­dum with the Troika of in­ter­na­tional lenders, fol­low­ing the de­layed ap­proval by the House of the frame­work for in­sol­ven­cies and fore­clo­sures.

The bill en­sures that the rights of the bor­row­ers and mort­gage hold­ers of non­per­form­ing loans, presently ac­count­ing for more than 50% of the bank­ing sys­tem’s loan­book, will be trans­ferred to the new in­vestors.

The bill, drafted by the Cen­tral bank of Cyprus and ap­proved by the Le­gal Ser­vices,


the was sub­mit­ted by Fi­nance Min­is­ter Haris Ge­orghi­ades who hopes deputies will study it im­me­di­ately and ap­prove a fi­nal ver­sion by the end of Septem­ber.

Loans of up to EUR 1 mln rep­re­sent­ing about 96% of all loans in Cyprus and will be able to be sold to port­fo­lio in­vestors that must Cyprus or EU-reg­is­tered and ap­proved fi­nan­cial en­ti­ties.

This way, banks will be able to rid them­selves of dis­tressed loans and avoid cre­at­ing a “bad bank” to un­der­take or guar­an­tee this re­spon­si­bil­ity. Banks have al­ready started call­ing in long-over­due loans, some of which are not ser­vice­able as the col­lat­eral is worth far less than the loan it­self.

On the other hand, bor­row­ers were re­luc­tant to sur­ren­der as­sets, which had sent the bank’s NPLs to soar­ing lev­els, forc­ing them to con­stant re­vise their pro­vi­sions up­wards.

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