Upstract Image1

Related Practice Areas

Related Practice Areas

Upstract Image2

Related Industry Sectors

Related Industry Sectors



cyprus regulates the legal framework

Since 1999, Cyprus completely liberalised any kind of regulation on interest rates. 

The Liberalisation of the Interest Rate and Related Matters Law No. 160(I) of 1999 had the effect of allowing any banking institution, as an aspect of freedom of contract, to agree with its customers the rate which the banking institution would be allowed to apply as well as the default rate which would be applied on overdue loan installments or on debit balances if the account was terminated as a result of non compliance with any provision of the credit facility agreement.

This meant two things: first, the banking institution had the right and discretion, at any point in time, to increase unilaterally the interest rate in a loan; second, that upon a loan instalment becoming due and payable, the banking institution could apply an increased percentage rate (also known as default interest) on the installments amount or the loan balance in general. At the same time, there was no cap to such an increase and the only real ceiling was the percentage provided in the relevant credit facility agreement, which had no reference to any pragmatic criteria, such as the loss of the banking institution or other. This absolute freedom resulted to a disparity on the default interest rate percentage among banking institutions in Cyprus and, occasionally, to the application of interest rates which were substantially above the initial loan interest rate. 

This phenomenon was the subject of criticism by various stakeholders and the Cyprus Parliament responded to this situation by the introduction of certain changes, which aim, on the one hand, to protect the rights of the debtors of credit institutions by prohibiting the imposition of any additional financial burden which arises when a banking institution unilaterally exercises a contractual right to increase the rates and, on the other hand, to promote transparency on the assessment of interest rates in credit facilities as well as to establish a level playing field on this matter. At the same time, this new legal framework has aimed to provide some comfort to consumers and other debtors who have found themselves in the problematic position of not being able to perform on their loans.

The following are the key provisions of the legal framework on the increase of interest rates and default interest rates: For all credit facilities provided by a banking institution operating in Cyprus, which had not been terminated prior to 9 September 2014 or were concluded after the said date, any default interest rate above 2% is prohibited. For all credit facilities provided by a banking institution operating in Cyprus, which had been terminated on or prior to 7 May 2015, any default interest rate above 2% creates a rebuttable presumption that the interest does not represent the true loss of the banking institution and it is for the banking institution to prove that any such default interest represents its true loss. 

If the banking institution cannot prove such loss, then any person who has already paid for default interest rate (in excess of 2%) may claim damages for the amount paid and the banking institution has the obligation for restitution the benefit taken or pay compensation to the person who has suffered damage as a result of such charge. Any contractual term which gives to a banking institution the right of unilateral increase of the interest margin in a credit facility agreement which is valid on 9 September 2014, cannot be enforced after the said date.

It is prohibited to a banking institution to include in its standard form agreements any term which confers to the banking institution the unilateral right to increase the interest margin in a credit facility agreement. Special provisions apply in connection to loans secured by mortgages or housing loans.

For more information, please contact us at This email address is being protected from spambots. You need JavaScript enabled to view it.

Back to News

Monday – Friday

8:00 – 18:00

TEL: +357 24 201 600

FAX: +357 24 201 601

Privacy Policy