In relation to the management of NPLs and the improvement of the banking system, the Treasury says that the new divestment framework, as passed by the House of Representatives in August 2019, provides for the possibility of out-of-court recourse/appeal of borrowers with non-performing loans (NPLs) to the Financial Ombudsman (FCO).E) to examine their complaints against credit institutions regarding, inter alia, over-indebtedness and violation of the Central Bank of Cyprus Code of Conduct. In the event that the Commissioner finds a breach by the creditor of the code on restructuring, the borrower will be entitled to appeal to the Court, which will immediately issue an order to suspend the sale of his mortgage or business property. It also includes an additional ground of recourse to the Court in case a lending institution has refused to come forward or failed to enter into a loan restructuring process.
The Ministry of Finance for the purpose of managing MFIs has prepared three specific Plans since 2019, the ESTIA Plan, the HOME Plan and the Management Plan for Delinquent / Expired / Terminated Loans granted through the Central Equal Burden Sharing Agency. Furthermore, the European Commission is expected to approve the last of these, the Rent for Rent Scheme, which targets genuinely vulnerable borrowers, regardless of whether or not they applied to the aforementioned Schemes, and also covers cooperative borrowers who applied to the aforementioned Schemes but were found to be unviable.
With regard to the continuous increase in lending rates, the Ministry of Finance notes that the Government cannot interfere with the interest rate policy of credit institutions and the powers of the European Central Bank (ECB) and the Central Bank of Cyprus.
It welcomes, however, the announcement by the CEDIPES of the Interest Subsidy Scheme, which is aimed at debtors who are not in arrears in repaying their loans and whose loan contracts carry a base rate linked to the ECB's main refinancing operations rate, which with 6 consecutive increases has been increased by a total of 350 basis points (3.50%) compared to June 2022.
The CEDIPES' decision to refund interest so that the amount charged for the year is equivalent to a debit rate of 3.50% on mortgages and 4% on all other loans for other purposes will cover about 44% of the amount that debtors would have to be charged.
The Treasury considers it extremely important in the current difficult economic conditions, created by the effects of the Russian war in Ukraine, to maintain the viability of restructured loans for already burdened households.
Reiterates its support for efforts at the European level to complete the banking union and strengthen the resilience of the Eurosystem as well as to improve the management of NPLs in the economy.
Reiterates the importance given by the international Credit Rating Agencies in their assessment of the Cypriot economy to this issue and the intensification of the effort that needs to be made. All the agencies set as a key criterion for upgrading the credit rating of the Cypriot economy the further reduction of NFCs to sustainable levels.
Finally, it stresses the crucial importance of a stable legal framework governing out-of-court auctions, alongside the existence of an effective insolvency framework, in order to achieve the objective of reducing NPLs and protecting depositors.
(OP)
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