Approval of insolvency law will help banks in Cyprus tackle NPLs

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The enactment of the much debated insolvency framework law last week was a positive move for banks in Cyprus because of the footing it puts in place for large-scale loan restructuring and improves the banks’ recovery prospects, Moody’s ratings agency stated.
A significant effect of passing the insolvency bills was implementation of stricter foreclosure legislation severely cutting the time it takes to foreclose & auction real estate collateral to 18 months, which had been blocked by the parliament in Cyprus since last November until the insolvency framework was introduced.

“Application of the foreclosure bill lays the groundwork for large-scale loan restructurings and improves the Cypriot banks’ recovery prospects” Moody’s anticipated.

Local banks in Cyprus suffer due to an unprecedented level of non-performing loans, which makes up half of all loans. Uncertainty over the final provisions of personal and corporate insolvency legislation, as well as the suspension of the law on foreclosures, worsened the problem as debtors adopted a wait-and-see approach.

The enactment will be provide positive outcomes such as to incentivise individuals looking to restructure their loan as well as the continuation of Cyprus’ bailout programme review, which had been frozen by the Troika (the EU, ECB, & the IMF) when Cypriot legislation suspended implementation of the new foreclosure rules.