Financial Ombudsman urges borrowers to restructure their NPLs as soon as possible to avoid foreclosures

Financial Ombudsman of the Republic of Cyprus Pavlos Ioannou urged all borrowers that have non – performing loans (NPLs) to restructure them as soon as possible in order not to face “radical solutions” as foreclosures and repossessions.

Speaking in a seminar organized by the Association for the Protection of borrowers in Limassol, Ioannou suggested that the recent call of the Central Bank Governor Chrystalla Yiorkadji to the banks to procced with “radical solution” for NPLs concerns nothing else than foreclosures and repossessions.

He also said that Yiorkadji `s statement in the Parliament on a downward trend in the pace of restructuring is an indication that the NPLs portfolio can not only be dealt through restructuring.

Ioannou called on all citizens with NPL loans to demand a restructuring of their loan immediately, based on the relevant directive of the Central Bank, which, as he stressed, should be applied by the banks.

As he said if the directive were fully used both by the banks and the borrowers themselves, NPLs would be very different and the problem much smaller.

He also expressed the view that NPLs have a dynamic that make them grow over time and added that is not true that the problem will be cured within five or ten years and warned that it will then be totally impossible to deal with it.

He also said that NPLs “become contagious” because, as he explained, when the debts of the primary debtor are transferred to guarantors who are prime debtors in their own loans, they are also at risk of becoming non-performing, if they cannot respond to their new obligations.
He went on to say that even if they serve their loans the protective measures taken by the banks on the real estate of the guarantors create new restrictions on the economic activity of the private sector and affect, among other things, real estate and construction, pointing out that this create a vicious circle.

The Financial Ombudsman also highlighted the indirect cost of NPLs to the Cypriot economy and society as their huge number is the reason that the country is not in the investment grade of the international rating agencies, with an impact on borrowing costs and the attractiveness of the country to investors.

source: CNA