The directive, entitled ‘Directive on Arrears Management of 2013’, details actions required of financial institutions with the aim of maximising the effectiveness of their debt-restructuring procedures. Financial institutions are instructed to develop a strategy (the ‘Arrears Management Strategy’ or AMS) for managing high-risk and non-performing loans through restructuring, and offers guidelines for the batching of various similar cases to facilitate efficiency, as well as tools to be used in implementing and monitoring the effectiveness of the strategy. Further action required of financial institutions includes developing a procedure for borrowers’ appeals to an independent Appeals Committee to be established by each institution.
The directive also warns institutions against failure to comply with reporting requirements and inefficient ‘arrears management performance’. These could be met with Central Bank-imposed sanctions, which “may include, inter alia, restrictions on bonuses.” Several out-of-court debt restructuring options are described in the directive, differentiating between short-term and long-term solutions. Financial institutions are directed to consider restructuring options with borrowers’ financial position and prospects in mind.
A 'code of conduct on the handling of borrowers in financial difficulties' was also issued by the Central Bank, attached to the directive as an appendix. The guiding principles of the code stress the need for collaborative efforts by both financial institutions and borrowers to reach agreement by means of two-way communication, transparency in providing financial and other information, and consideration of options in good faith. Further, the code distinguishes between cooperative and uncooperative borrowers, penalising any instances where the debtor refuses or neglects to collaborate.
A borrower may be classified as uncooperative if either he or she fails to disclose material financial information pertaining to his or her repayment ability, regardless of whether such disclosure has been requested by the institution, or where the institution has notified the borrower of payment in arrears and 90 days have elapsed without response or settlement. If a borrower has been classified as ‘uncooperative’, the lender may then initiate legal proceedings, but not without notifying the borrower of such action and providing them with a final chance to cooperate in finding a mutually agreed-upon solution, within a reasonable timeframe.
In a joint statement following a meeting, the borrowers’ and banks’ associations announced that no repossession procedures are expected until 2018. Borrowers’ association head Costas Melas clarified that this was not an agreement between the parties but rather a calculation of the timeframe that will be required at a minimum for legislation to pass through Parliament, and subsequently for final court decisions in the first repossession cases to be made.
Source: Cyprus Mail