Finance Ministry warns against toxic loans rise

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The Finance Ministry has stressed the importance of having stable legislation regulating out-of-court auctions in tandem with an effective insolvency framework to achieve a reduction of bad loans.

“It is extremely important under present difficult economic circumstances which have been created from the impact of the Russian war in Ukraine, to maintain the sustainability of restructured loans of households which are already burdened,” a Finance Ministry said.

It welcomed a recent announcement of State-owned asset management company KEDIPES that, in the context of rising interest rates, it will subsidise the interest rates so that restructured and performing loans for house purchases and other loans will not exceed 3.5% and 4.0%, respectively.

The Finance Ministry said the new foreclosures framework voted by Parliament in August 2019 provides the possibility of an out-of-court recourse of borrowers who have non-performing loans (NPLs) to the Financial Ombudsman to review their complaints against credit institutions over excessive charges and violation of the Central Bank’s code of ethics.

“If the Financial Ombudsman finds that there has been a violation on the part of the creditor of the code for restructurings, the borrower is entitled to go to Court, which can issue immediately an order suspending the foreclosure of their house or business premises,” the ministry said.

A borrower can go to court if the credit institution has refused or did not enter the process of restructuring the loan.

The ministry said it has put in place since 2019 schemes to help distressed borrowers.

Approval by the European Commission is pending on the “Rent-To-Mortgage” scheme to help vulnerable borrowers, irrespective of whether they have already applied to previous schemes and would cover cooperative borrowers who had applied to previous schemes but were deemed non-sustainable.

Nicosia supports “efforts at a European level to complete the banking union and enhance the durability of the Eurosystem as well as to improve the management of NPLs in the economy.”

The Finance Ministry stressed the weight placed by international credit rating agencies on toxic loans when assessing the Cypriot economy.