The Central Bank of Cyprus decided to relax loan origination rules while it freed an additional capital amounting to €100 million, bringing the total capital buffer to €1.4 billion, in a bid to encourage banks to continue lending and show a more flexible stance to business and households affected by the coronavirus epidemic.
The Bank also urged commercial banks to show more flexibility in dealing with borrowers affected by the epidemic, offering restructurings that include suspension of instalments on capital, interest or both for a period of nine months.
The Central bank also said it is considering further measures which will be announced within the following days. The decision came a few days after the Single Supervisory Mechanism announced it relaxes the banks’ capital requirements freeing up capital amounting to €1.3 billion for Cyprus’ systemic banking institutions.
In a statement issued after a meeting of the board of directors the CBC said it to free capital reserves for the banks directly under its supervision amounting to €100 million.
“The total capital freed up to €1.4 billion is made with the purpose to transmit the benefit from the banks to the economy, via favourable restructurings to both businesses and households,” the CBC said.
The CBC also decided to relax loan origination criteria to assist the affected businesses and households to obtain the necessary credit to cover their current obligations.
According to the CBC performing borrowers, both companies, self-employed persons and public servants affected by the government measures can apply for such loans until June 30. The relaxed criteria concern the evaluation of loan repayment capacity and the submission of the necessary documents.
These new credit facilities cover overdrafts, short-term loans with payment upon maturity without monthly instalments.
The CBC also urged the banks to show the “necessary” flexibility to affected businesses and households and offer restructurings, including suspension of capital or interest instalments or both for a period of nine months, according to each bank’s policy and each customer’s financial situation.
Performing borrowers should apply by June 30, the CBC added.
The CBC also urged the banks to provide lower interest rates for both new loans and restructured facilities and not to charge loan origination fees.
Furthermore, the CBC called on Credit Acquiring Companies to provide short-term restructurings to affected borrowers affected by the government measures to contain the spread of coronavirus.
The CACs may deviate from the requirement to follow detailed evaluation procedures and restructuring approval for a period of nine months, the CBC added.