Cyprus introduces tougher Foreclosure laws to reduce the high stock of NPLs, strengthening the banking system

Cyprus introduces tougher Foreclosure laws to reduce the high stock of NPLs, strengthening the banking system

On 9th July 2018, the Extraordinary Plenary Session of the House of Representatives of the Republic of Cyprus voted into legislation, five bills, as well as adopted a draft regulation, concerning the Non-Performing Loans (NPLs) (https://www.stockwatch.com.cy/en/article/trapezes/finmin-house-co-op-decision-will-lead-sound-banking-system).

Also, the draft regulation, submitted by the Parliamentary Finance Committee was unanimously voted into law, and will regulate, on a temporary basis, the protection of guarantors for borrowers who fall under the insolvency law for contracts concluded or to be concluded until the law is passed.

The newly passed amending laws are; Immovable Property (Transfer and Mortgage) Law (Amending) of 2018, the Sale of Credit Facilities and Related Matters Law (Amending) of 2018, Insolvency of Natural Persons (Personal Repayment Plans and Debt Relief Orders) Law (Amending) of 2018, Companies Law (Amending) of 2018, Insolvency Practitioners Regulation (Amending) of 2018.

These laws will facilitate the fast tracking of 5,373 foreclosures for which notifications letters have been served since the third quarter of 2015 (http://www.news.cyprus-property-buyers.com/2018/07/09/tougher-insolvency-npl-laws/id=00154431).

Under the revised legislation the banks are preparing to foreclose on 183 primary homes939 second homes/apartments524 commercial properties, 17 hotels, 828 plots of land, 2,812 fields and 70 other properties. Also included are other properties for which a first auction date has been set comprising 54 primary homes/apartments, 414 secondary homes/apartments, 258 commercial properties, 34 hotels, 408 plots of land, 1,641 fields and 30 other properties. 

The revised NPL laws will help the banks better deal with strategic defaulters, those who are able to pay but refuse to do so.

As of the 9th July 2018, the state guarantees of EUR 2.6 billion approved by Parliament on 8th July 2018 pave the way for the Hellenic Bank- Cooperative Bank merger, as well as the speeding up process of foreclosures and the first big sales of loans. Additionally, the loan securitizations are being applied, and the immediate planning of the government scheme ESTIA and of NPLs management body(https://www.stockwatch.com.cy/en/article/trapezes/cabinet-approved-estia-scheme-and-npls-management-body).

The establishment of a non-performing management body which will manage the Cyprus Co-operative Bank’s non-performing loans. FinMin said that the management will be carried out by speca ialised foreign company and revenue is expected to be considerable (https://www.stockwatch.com.cy/en/article/trapezes/finmin-house-co-op-decision-will-lead-sound-banking-system).

ESTIA, is the scheme designed to help struggling borrowers repay their loans, in which the ESTIA beneficiaries may have up to 50% relief, coming from partial debt relief and reduced rate.

The scheme allows borrowers, households or small and medium-size enterprises (SMEs), who have pledged their primary residence with a value of up to EUR 350.000 as collateral, to have one third of their monthly payment paid by the taxpayer. Borrowers with an annual income of below EUR 50.000 are eligible provided that the net value of their assets does not exceed to 125 per cent of the value of the home, i.e. EUR 437.500. (http://cyprusbusinessmail.com/?p=66563).

The new adjustments relating to foreclosures include: mortgages are cleared to secure all the borrower’s loans, the process of selling mortgaged property now entails clearer periods for the reserved price, the privileged status is terminated if the value of the primary residence exceeds EUR 350.000 and if the borrower receives a government grant to cover part of its debts, as well as limiting the cases where the borrower can bring the matter to Justice.

Continueing, the adjustments include the foreclosure procedure can only be terminated by a Court Orderchanges to the time periods and the way letters are sent, as well as it is now possible to conduct electronic auctions.

Furthermore, the changes to the sale of the loans are that: all collateral is transferred to the buyer of the loan without payment of fees, the transfer of borrowers’ benefits and their obligations are ensured, the borrower acquires access to all documents relating to the loan agreement and the seller of the loan (bank) acquires the right to clear off deposits and debts of borrowers (http://cyprusbusinessmail.com/?p=66790).

On a different note, regarding securitisations, it should also be noted that: Special purpose vehicles are set up to which loans will be transferred, shares or bonds (secured by the loans) are issued by the company predominantly to investors for the purpose of raising funds, the banks transfer loans to the special purpose companies, and the Central Bank of Cyprus is responsible for the securitization of loans.

In relation to insolvency, the changes include: government and local authorities lose priority repayment, the beneficiaries’ criteria are extended (market value of residence from EUR 300.000 to EUR 350.000, the total value of the rest of the property rises from EUR 250.000 to EUR 500.000), protection is terminated if the borrower fails to pay his obligations for three months and the protection for guarantors is extended.

Moreover, it is worth mentioning that regarding the NPL bills, they also aim to enhance the corporate debt restructuring framework and provides the split of a mortgage for the purpose of covering other loan agreements, in order to secure the loan when collateral is transferred to the buyer of the loan.

Finance Minister Harris Georgiades has stated that “the legislative framework is getting more effective and fairer”, “the expansion of the insolvency framework and the preparation of Estia… offers sufficient security” and has reassured that the “banking sector is definitely stabilized” (http://cyprusbusinessmail.com/?p=66790).

 

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