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TROIKA: Lenders step up pressure on Cyprus NPL payments

21 August, 2014

The Troika of international lenders is increasing the pressure to delinquent borrowers through the updated MoU issued following the conclusion of the fifth review of the €10 bln bailout for Cyprus.
The lenders’ suggestions come as non-performing loans (NPLs - loans in arrears over 90 days) in the Cyprus banking sector reached €27.5 bln in May, saying that the way forward is debt restructuring by the banks under Central Bank of Cyprus guidance.
However, Cyprus’ lenders believe that the extent of the NPLs rise is partly due to strategic defaults and delinquent borrowers, who refuse to service their loans despite having the ability to do so.
According to the fifth updated MoU, the CBC will issue revisions of the Arrears Management Directive and of the Code of Conduct on Arrears Management by end-November which will assist households and SMEs.
“The revised Code of Conduct will target only households and Small and Medium-Sized enterprises,” the MoU says.
The amendments will include specific procedural steps and precise deadlines, facilitating swift procedures within an appropriate time limit with clear start and end date to the restructuring procedure.
Furthermore, the CBC will issue by the end of October specific guidance to banks on operational and financial indicators, such as the ratios of proposed, concluded and successful restructurings as well as on tools to determine the capital cost of restructuring solutions.
The MoU stipulates that legal amendments to the law on financial ombudsman will be adopted in order to clarify that the responsibility for assessing compliance with the Arrears Management Directives is not transferred to the mediators but remains with the CBC.
However the updated MoU features elements that will increase pressure on delinquent borrowers.
Based on the MoU, “in order to encourage a market for distressed assets and to facilitate the issuance of securities by securitisation vehicles, the authorities will allow and facilitate lenders to transfer existing individual loans together with all collateral and securities to third parties at minimal transaction costs without having to obtain the consent of the borrower.”
To this end, the MoU notes, the authorities will establish a task force, consisting of relevant stakeholders from the public and private sectors, which will finalise an assessment of existing impediments and of required legislative amendments by end-November. The assessment will include a review of the regulatory framework for non-bank third parties.