Revised loan origination directive to be finalised by end-January, CBC says

Revised loan origination directive to be finalised by end-January, CBC says

The Central Bank (CBC) is preparing a revised directive for the granting of loans (loan origination) that will focus on the borrowers` capacity to repay its loans and not on the collateral, is being discussed with the stake holders and Cyprus` lenders and will be finalised by end-January, Yiangos Demetriou, head of the CBC supervision unit told CNA.

The revision of the loan origination directive is among the actions to be implemented in the banking system, in the context of the quarterly reviews of Cyprus` €10 billion bailout. The revised directive, that should have been published by December 2015, was postponed for end-January 2016, Demetriou said.

Commercial banks have pointed out that the loan origination published in end-2013 provided for a lengthy process that in the end obstructed the granting of new loans.

Demetriou pointed out that the revised directive contains a broad simplification of the loan origination process and its stresses once more that the primary criterion for the granting of a loan should be the borrowers` capacity to repay it and not the collateral which is considered as a secondary source of repayment.

He acknowledged that the first directive issued in the end of 2013 pushed things to the extremes which was necessary to control the situation to which the Cypriot economy and the banking system was in at the time.

“Now that the situation has relatively been normalised, we felt that it is time to somewhat ease (the requirements) so that the banks could provide loans, that the economy needs, always in the right framework,” Demetriou added.

Under the revised directive, credit institutions should assess the borrowers repayment capacity and could provide credit facilities with no collateral if they deem that the borrower`s repayment capacity is satisfactory.

Demetriou said the directive urges the credit institutions not to request personal guarantees if they are satisfied with the borrowers capacity to repay his loan. He added that if the banks also rely to the income of a guarantor this persons should be consider as a co-borrower.

Under the directive, the banks are guided on how to calculate the borrower`s repayment capacity such as his income in relation to the loan and the income/spending ratio.

The directive provides the banks with discretion in dealing with loan requests.

Concluding, he said as opposed to the previous directive which requested the submission of ample of documents with information over the borrower, the new directive will provide discretion to the bank to decide which information and documents are necessary.

Loan sale directives to be published on Monday

Furthermore, Demetriou said the lenders will by tomorrow send their final comments on the two draft directives governing the sale of loans and the CBC will publish the directives on Monday.

The first directive, he said, covers the process for licensing companies that would purchase credit facilities and the second regulates the process the banks should follow when announcing their intention to to sale a loan or a package of loans.

Furthermore, he said the CBC awaits the comments by the lenders and the stake holders concerning the bill on loan securitisation by Friday, January 22. After receiving the comments the CBC will finalise the bill and will send it to the Finance Ministry, which in turn will submit it to the Council of Ministers for approval.

The bill will then submitted to the Parliament. Under the eighth programme review the bill on loan securitisation should be adopted by the parliament by end-January.

Loan sales and loan securitisation are considered as two tools that would assist the banks to tackle non-performing loans in the Cypriot banking system which exceed €27 billion.