Press Conference of the General Secretary of the Central Committee of AKEL, Stefanos Stefanou

 

AKEL’s Framework proposals for the protection of borrowers

3 May 2023, AKEL C.C. Press Office, Nicosia

 

The problem of Non-Performing Loans (NPL’s) is one of the biggest problems society and our country’s economy faces.

 

The problem dates back. Unfortunately, the previous government delayed taking effective actions by applying half-measures and piecemeal solutions – usually before elections – which were ineffective. Worse still, they created the distorted image of the protection of borrowers when in reality the borrower is unprotected in the face of the arbitrary actions of the banks. We fear that the new government is pursuing the same policies as the previous one. At least, that is how it is behaving so far. The government announces interventions and decisions, but does not take any substantive action – apart from issuing warnings and making recommendations towards the banks.

 

The difference today, however, is that not only has useful time been wasted, but that conditions have also changed for the worse after the dramatic increase in the cost of living and in the cost of borrowing. And the worst is ahead of us. Foreclosures are already underway and thousands more are on the way, and these include primary family residences.

 

It is for this reason that as a responsible opposition force we are taking the initiative today to propose specific solutions to address the problem of Non-Performing Loans (NPL’s).

 

Dear friends,

 

Upholding social cohesion is a strong foundation on which both the robustness of the banking system and the prospects for sustainable and socially balanced growth rest.

We do not expect banks to promote social policy. But we do demand from the state that it takes practical actions and initiatives. Mere recommendations and an exchange of letters will not solve the problems.

 

The adoption of a comprehensive framework of support and protection for borrowers and small and medium-sized enterprises is imperative.

 

The NPL’s remain. They may not be in the banks, but have been sold to the Crediting Acquiring Companies. They may no longer be in the banks’ accounts but they are in the accounts of households and businesses. They affect the real economy and the prospects for sustainable and balanced growth.

 

The framework proposal that we are submitting forms the basis for our discussion with organised groups, competent bodies and interested parties, with the aim of developing a framework capable of addressing the problem of NPL’s.

 

The framework of proposals consists of the following pillars:

 

The first pillar aims to provide support to mortgage debtors so as to restore the balance in the mortgage debtor-creditor relationship in private debt restructuring procedures.

AKEL submits a series of proposals towards this end, such as the Regulation of the voluntary exchange of mortgages for debt (DFAS) so that in the cases of primary/family residences and small business premises, the exchange value should be the assessed value and not the forced sale value.

Before the Parliamentary Finance Committee, we have already submitted a relevant AKEL draft bill, which at a first stage has also received a positive assessment from the Central Bank.

At the same time, another AKEL proposal for a draft bill covering the second pillar is pending before the Parliamentary Finance Committee, which concerns the restoration of the access to justice and extrajudicial means.

Today we are experiencing the following paradox: While in theory the existence of unfair clauses is recognised, the legislative framework does not provide the necessary remedies for a quick, effective and fair review. A borrower can rightly complain about the imposition of illegal and unfair charges. He or she may rightly dispute the loan balance, but there is no mechanism for taking a decision to suspend the sale while there is at least a lawsuit in progress.

The draft bill that we have tabled regulates the adoption of temporary measures to suspend foreclosures pending the outcome of the lawsuit, a regulation that is also a contractual obligation of our country. The Republic of Cyprus risks facing additional infringement proceedings from the EU as its compliance with the acquis communautaire is incomplete.

At the same time, AKEL proposes the creation of an out-of-court dispute resolution mechanism for illegal charges and unfair clauses. The aim is to identify illegal charges and/or other abusive clauses before cases reach court. To verify the actual loan balance and provide an arbitration procedure for debt verification purposes.

The third pillar concerns the strengthening of the regulatory framework for the operation of the banks and Crediting Acquiring Companies with full transparency in their functioning.

We need to shield the framework against “bad payers” but at the same time address the rationale of “bad payers”. It is common knowledge that the SCCs prioritise property recovery over sustainable restructuring. That is precisely why it is necessary to complete the legislative and regulatory framework so that there is effective supervision and transparency for these companies as well.

The fourth pillar concerns the reduction of loan servicing costs due to the increase in interest rates.

The aim is to make it easier for compliant borrowers by providing a framework for adjusting to the new interest rates.

We reiterate the need to set a ceiling on lending rates for housing loans, particularly those handled by the Crediting Acquiring Companies, provide facilities to borrowers based on and in line with the provisions of the Central Bank Code and the creation of fixed rate rather than floating rate plans by banks.

Last but not least, the social policy pillar.

On the initiative of the state, a comprehensive social policy must be implemented to address the dangers and consequences that are created from the sale of primary and commercial housing.

At the same time, the State must proceed to cover part of the increased interest and the regulation of debts on the basis of income and social criteria, a tool that has been adopted by other countries at a European level.

This can be done when the necessary political will is demonstrated. AKEL has the will to do so. Do the government, the parties that support it and DISY, which has always been supporting the banks, have this will? We have not seen any such will.