One month after the publication of the directive on arrears management and debt restructuring, the Central Bank of Cyprus (CBC) wishes to remind banks and cooperatives to take all reasonable steps to ensure the prompt and proper compliance of the directive.
The CBC considers this directive to be of paramount importance in its goal of ensuring financial stability as it forms the means of improving the loan portfolios of institutions whilst relieving borrowers of onerous loan instalments and reducing the risk of losing their properties.
Banks, cooperatives and borrowers are all required to adopt a constructive approach to the restructuring of debt with a view to agreeing fair and sustainable solutions.
In this respect, the Code of Conduct provides that banks and cooperatives must exercise every reasonable effort to cooperate with borrowers and to obtain all the necessary financial information that will enable them to carry out a thorough assessment of borrowers’ ability to repay their instalments. This cooperation will thus form the basis of repayment arrangements that are acceptable to both the institutions and the borrowers.
Banks and cooperatives are obliged to implement a fair and viable pricing policy which entails charging the minimum possible fees and lowering the interest rate so as to be in line with the repayment ability of borrowers.
In those cases where the restructuring solutions are not regarded as fair and acceptable by the borrowers, the directive provides for the establishment of Appeals Committees. These Committees, although internal, must be independent of those responsible for the approval of loans and restructurings so that they perform checks on whether the provisions of the code have been complied with. Moreover, the Appeals Committees must strive to reach a reasonable compromise between the borrower and the institution.