In the past years, the significant and uncontrollable issue of non-performing loans, alternatively referred to as ‘red loans’, has seen a rise in both private loans and household loans.In comparison with other European Countries, Cyprus holds the highest-ranking of non-performing loans following Greece.
In 2014-2021, a bundle of measures were used to tackle this problem, including amongst others the purchase of loans by Credit Acquisition Companies. Nonetheless, research has shown that a high ratio of non-performing loans persists which creates a long term disproportion in the economy. Therefore, the reduction of non-performing loans remains a challenge. In this respect, an integrated and holistic framework has recently been presented at the House of Representatives for passing new amended bills, with the aim of better targeting the management of non-performing loans, by introducing various tools and solutions for the further reduction and resolution of the problem of non-performing loans.
In the banking sector, the progress of non-performing loans has seen a significant improvement by amending the legal framework, therefore, it is proposed to introduce the following two bills, firstly “The Purchase and Sale of Credit Facilities and Related Matters (Amended) Law of 2022“, and secondly “The Immovable Property (Possession, Registration and Valuation) (Amended) Law of 2022”.
The first proposed Bill suggests that the law should be amended to create a supervisory framework of the Credit Institution Companies with the aim of minimizing non-performing loans. This will be achieved by appointing a qualified credit Manager instead of other non-specialised Managers working in the Credit Acquisition Companies. The second proposed Bill aims to grant access to the Credit Acquisition Companies in the database of the Land Registry, upon filing an application. This will enable the valuation of the creditworthiness of borrowers.
Moreover, a new proposed regulation in the foreclosure process is being discussed. By this proposed Law the borrowers will have additional rights including, amongst others, the right to file an appeal to dispute the amount due. This law proposition creates several challenges since every debt dispute amongst borrowers and creditors will be taken to Court, resulting in a further delay and inefficiency in the whole process.
The Evidence (Amended) Law of 2020 has been submitted in March 2020 by the Ministry of Justice and Public Order. The purpose of this proposed amendment is to enable the Credit Acquisition Companies, just like the Licensed Credit Institutions, to present at Court as an admissible testimony, the submission of a copy of a bank’s account in relation to the height of the amount due. This proposed Bill was never enacted, but lately, thoughts on re-enacting the proposed Bill are in place and are under constructive criticism in the House of Representatives. Similarly, there are proposals to amend and reinstate the Courts (Amended) Law of 2019 in order to create a special jurisdiction to hear cases related to credit facilities and bonds, and as a second recommendation, to adjudicate applications/appeals within 60 days upon their filing.
Finally, the passing of the above-mentioned proposed amended bills will contribute to the development of the secondary loan market in order to sell the loans, which will effectively contribute to the reduction of the private debt in Cyprus.