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Loan sales bill approved

29/07/2015 15:43
The bill governing the sale of loans, approved by the cabinet today, provides for the safeguard of the borrowers’ rights as well as strict criteria for the sale of loans of up to €1 mn representing almost all loans of the Cyprus banking system.

The bill, prepared by the Central Bank and vetted by the Legal Service, was tabled at the meeting by the finance minister Haris Georgiades and it will be given to the parliamentary parties the soonest so that it is processed with the start of the parliament’s activities after the summer break.

Based on the updated memorandum, the bill must be approved by the House of Representatives by the end of September.

There are two key points in the bill.

The first is that all the rights of the borrowers, whether they relate to provisions of the law or they originate from the Central Bank instructions, such as the code of management of arrears, are transferred without any alteration.

Furthermore, for loans up to €1 mn, which according to technocrats, represent 96% of the loans in the banking system and cover households and SMEs, a more rigorous process is determined whereby loan buyers will only be Cyprus licensed credit institutions and credit institutions licensed in a member- state of the EU as well as special loans acquisition companies (non-credit institutions) established in the Republic and licensed by the Central Bank.

For loan sales of more than €1 mn the only criterion is the transfer of the borrowers’ rights.

The bill does not legalize the free sale of loans, as it has always been permissible on the basis of the four fundamental freedoms of the EU, namely the free movement of capital.

This bill is a tool that will contribute significantly to the management of a large proportion of non-performing loans, while it is stressed that borrowers are not expected to be worse off than they were before the sale of loans.

The credit institutions or the loan acquisition companies will have more room to manage their loans than banks which are facing more pressure on their accounts due to the non-performing loans.