Bank association warns foreclosure changes could hit Cyprus credit rating

The Association of Cyprus Banks has warned that proposed legislative changes to Cyprus’ foreclosure framework could have negative consequences for credit institutions and the wider financial system, as parliament prepares to debate a series of amendments.

The association submitted a written note to the House finance committee, which is examining proposals to amend the country’s foreclosure legislation.

“Possible approval of the proposed laws will have negative consequences for credit institutions, the stability of the financial system and possibly the credit rating of the Cypriot economy because they will suspend the timetable and procedures for property foreclosures,” the association said in its note to parliament.

The organisation said its members have expressed strong concern over the proposed amendments to the foreclosure framework, which are currently under discussion in the legislature.

According to the association, the existing legal framework for property foreclosures already contains reliable procedural mechanisms for borrowers seeking relief.

It explained that in cases where there are valid reasons to halt foreclosure proceedings, debtors can obtain a prohibitory court order or submit complaints to the Financial Commissioner regarding charges, abusive clauses or mediation.

“Continuous attempts to amend the foreclosure framework through various legislative proposals risk rendering the foreclosure process ineffective and inefficient, making debt recovery more difficult because of the time-consuming delays in the courts,” the association said.

The association added that Cyprus continues to face the challenge of very high private debt, which has been repeatedly highlighted in assessments by international institutions.

“In all evaluation reports on the Cypriot economy published by credit rating agencies, the European Commission, the International Monetary Fund and others, the management of the very high private debt remains the greatest challenge for the economy,” the association said.

“The problem of very high private debt requires holistic management and a definitive settlement,” the association added.

The group said that most of the problematic loans are decades old, have already been terminated and in many cases are currently before the courts.

“These debts do not concern loans granted in recent years but non-performing loans dating back decades that have been terminated, are in court and in many cases are already subject to judicial decisions,” the association said.

“The key to resolving the problem is directly linked to the viability of the debtor, the ability to repay the debt and the level of cooperation shown in resolving the issue,” the association added.

“Suspending foreclosure and engaging in endless court procedures is not an exit and does not solve the problem,” the association continued.

What is more, the association stated that “on the contrary, it perpetuates the current uncertainty, postpones any settlement and continues to keep the debtor outside banking services”.

The association also pointed to the limited use of mechanisms available to borrowers through the financial ombudsman, despite reforms introduced in 2023.

Under those changes, borrowers were given the right to apply to the financial ombudsman to verify the amount of debt owed while foreclosure proceedings are temporarily suspended.

However, the association said that borrower interest in this option has been extremely limited.

According to data from the financial ombudsman, about 200 requests for foreclosure suspension were submitted in 2025, but only six requests sought examination of the outstanding debt balance.

Of those cases, five were rejected because a court ruling had already been issued, while one request was withdrawn by the applicant before it could be examined.

“It would be expected that the 200 borrowers who requested suspension of foreclosure would simultaneously submit a request to the financial ombudsman to examine and decide on the debt owed, since this is what borrowers dispute in most cases,” the association said.

The issue returns to the political agenda as the finance committee examines 26 legislative proposals aimed at changing loan restructuring procedures and the foreclosure framework.

The debate takes place in an environment shaped by geopolitical uncertainty and concerns over financing costs for households and businesses, factors that could affect the broader economic outlook.

The discussion over foreclosures remains closely tied to the management of non-performing loans following Cyprus’ banking crisis, which peaked in 2013 and led to major reforms in the country’s financial sector.

In recent years, a large portion of distressed loans has been transferred from banks to credit-acquiring companies that purchased loan portfolios, including the state-owned asset manager Kedipes.

Figures from online platform ACB E-Auctions, provided to Cypriot daily Politis, show that about 85 per cent of auctions now involve loans owned by credit-acquiring companies rather than banks.

The numbers also indicate that foreclosure proceedings often lead to negotiations before an auction takes place.

In 2024, 4,211 foreclosure procedures were initiated, while in 2025 the number reached 3,608 cases, including repeated auctions for the same property.

Of the 2025 cases, 294 concerned houses and 333 apartments, with many of the latter located in Paralimni and including properties owned by foreign nationals.

The figures also included 517 plots with buildings and 278 fields with buildings.

However, the numbers show that 35.9 per cent of auctions were suspended, often shortly before the scheduled sale after borrowers sought to reach agreements.

In many cases, auctions are halted on the day of the sale or one to two days earlier when borrowers indicate they want to negotiate a solution, the platform reported.

In 2025, 104 auctions were stopped while they were already in progress, while others were suspended following court orders.

Overall, 739 properties were ultimately sold through auction in 2025, including 67 houses and 112 apartments, although it is not known how many were primary residences.