In a move that could reshape Cyprus’s financial landscape, Parliament recently passed a European Directive that makes it easier for foreign investors to buy non-performing loans (NPLs) in the country, according to a report by Kathimerini’s Panayiotis Rougalas. NPLs are loans that borrowers are struggling to pay back, and this new law changes the way these loans can be managed and sold.

What’s Changing for NPLs in Cyprus?

Until now, if an international investment fund wanted to buy NPLs in Cyprus, it had to create a local company and meet Cypriot regulations under the supervision of the Central Bank of Cyprus (CBC). Now, with this directive, these funds don’t have to go through these steps. Instead, they can use their existing European licenses to buy troubled loans in Cyprus, as long as they assign a local company to manage them.

This means big players from across Europe can now more easily buy NPLs in Cyprus by partnering with established companies here, such as Themis, Gordian, and Altamira, which specialize in handling these types of loans.

For instance, Intrum, a credit management company working with Piraeus Bank in Greece, could buy a large portfolio of Cypriot loans from Themis without having to set up an office in Cyprus. It would just need a local partner, like Gordian, to manage those loans. This change is expected to bring in more investors to Cyprus’s NPL market, making it easier for them to buy these loans without the previous regulatory hurdles.

More Competition Could Lead to Faster Solutions for Borrowers

For Cypriots with NPLs, this change might offer more flexibility. With more investors able to buy up troubled loans, there may be new options and solutions for borrowers. These investors might be more willing to negotiate repayment plans or restructuring to recover some of the loan value. While the focus is still on the investment side, the increased competition could lead to more flexible approaches to help borrowers repay their loans under new terms.

Domestic Market Also Seeing New Opportunities

It’s not just foreign investors who may benefit from these changes. Local companies, such as KEDIPES, could find themselves able to buy or sell more NPL portfolios, potentially leading to new partnerships or even further investment within Cyprus.

Protecting Performing Loans

One important part of this new directive protects loans that are still being paid on time. Cypriot banks are now restricted from selling these “performing” loans to credit acquisition companies. The goal is to keep healthier, regularly serviced loans under direct bank management, adding a layer of stability to the financial market.

NPLs: Still a Major Part of Loan Portfolios

While this new directive is opening up the market, non-performing loans still make up a large chunk of the credit portfolios held by Cypriot Credit Acquisition Companies (CACs). According to a recent report from the Central Bank of Cyprus, 77% of these companies’ portfolios are NPLs, worth around €19.9 billion. Although there’s been progress in reducing NPLs, they remain a significant issue in Cyprus’s economy, especially as the rising cost of living affects people’s ability to make payments.

Banks’ NPL Levels Are at a Record Low

On the banking side, Cyprus is seeing historic lows in NPLs, with banks reporting just €1.65 billion in troubled loans as of July 2024. The ratio of NPLs to total loans has fallen to 6.8%, marking a continued trend of improvement, as banks have steadily reduced their exposure to risky loans over the last few years.

What This Means for Cypriots with NPLs

For those currently struggling with loan repayments, these changes may be a mixed bag. On one hand, more investors could mean increased flexibility in loan management. But it also brings new players into the game who are focused on recovering investments. Anyone with an NPL should consider reaching out to their lender or loan servicer to explore their options, as the increased competition might lead to more willingness to negotiate.

In short, this new directive could bring more investment and, potentially, new options for those with troubled loans in Cyprus. However, borrowers need to stay informed about their options and work closely with their loan servicers to ensure the best possible outcomes.

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