By Elias Hazou
CENTRAL Bank (CBC) chief Chrystalla Georghadji has urged parliament to modify a law passed recently by the House which restricts the sale of loan portfolios by banks to third parties, warning that the way in which the law is phrased hinders the free flow of capital, and discriminates between businesses operating in Cyprus.
In a letter addressed to House Speaker Yiannakis Omirou, the CBC governor appealed to parliament to “take corrective action” by modifying the law as soon as possible.
On January 29, parliament passed an amendment to the Banking Law (1997 to 2013), inserting a clause by which banks licensed in Cyprus may not sell a loan portfolio to credit institutions – such as hedge funds – operating here but licensed elsewhere.
As the law stands, banks may dispose of loans (in whole or in part) only with credit institutions that have been licensed in the Republic.
The amendment was introduced by the Citizens Alliance party, headed by Giorgos Lillikas.
In her missive, dated February 10, Georghadji noted that the proviso entails unequal treatment of financial institutions operating on the island and may thus be unconstitutional.
Further, the CBC chief pointed out, it has created problems for foreign-controlled financial institutions, licensed in Cyprus, which as part of their usual operations engage in transferring or re-purchasing loan portfolios of foreign clients to their parent companies.
In addition, Georghadji noted that parliament did not consult with the CBC before enacting the law, and that this may well pose a problem for Cypriot authorities for not checking with the European Central Bank.
The CBC has drafted its own legislation on the same issue, “in a way that addresses the concerns raised by the legislature,” Georghadji wrote.
The CBC has already sent the document to the troika of international lenders and is waiting for their feedback.
In the meantime, the central banker urged parliament to re-amend the law by scrapping the contentious article.
Opposition parties in the main are wary as to what happens once Cypriot banks are able to sell debt to third parties: would hedge funds then change the terms of the loan and engage in predatory practices against borrowers?
During previous discussions in parliament, Georghadji had sought to assuage such concerns, telling MPs that third parties buying debt from banks here would be subject to Cyprus law; in any case, she added, any such sale of debt would require prior approval from the Central Bank.
