Cyprus: Credit Acquiring Companies In Cyprus

Last Updated: 23 February 2016
Article by Marios Koutsios and Demetris Nicolaou

The main problem that the Cypriot economy faced in recent years was the disproportionately big size of the banking sector in relation to the country's GDP. The failure of the banking system led to the imposition of a bailout programme imposed by the international lenders. The banks have successfully recapitalised themselves, yet the main issue they faced was the number of non-performing loans (NPL) they had to deal with. The banks had a hard time dealing with securitisation and sale of NPL portfolios because the activity was restricted and cumbersome. Recent changes in the law give banks the opportunity to proceed with securitisation of NPLs and make them available to investors.

In particular, the Sale of Credit Facilities and Related Matters Law 2015 (the Law) was entered into force. It is now possible for a broad number of legal entities to engage in activities for acquiring credit facilities in Cyprus. This development expands the range of investment possibilities in Cyprus, for credit and financial institutions as well as private companies, subject to the prior authorisation from the Central Bank of Cyprus (CBC).

Scope of application

The Law applies to the following cases of credit facilities:

  1. credit facilities granted to natural persons; and
  2. credit facilities granted to micro and small enterprises.

The following types of credit facilities are not covered by the Law:

  1. Credit facilities to natural persons who are not permanent residents of the Republic of Cyprus or legal persons which are not registered in the Republic of Cyprus;
  2. Credit facilities within relation to operations/investments outside of the Republic of Cyprus;
  3. Credit facilities which have as principal collateral property situated outside of Republic of Cyprus; and
  4. Credit facilities which are governed by foreign law.

Eligibility for acquiring credit facilities

The following legal persons may acquire credit facilities:

  1. A credit acquiring company, including an asset management company which is established either by private or public funds;
  2. A credit institution authorised by the CBC;
  3. A credit institution that is authorised and supervised by the competent authority of another member state that has the right to provide services or to establish a branch in the Republic of Cyprus; and
  4. A financial institution, which is a subsidiary of a credit institution incorporated in a member state that has the right to provide services or to establish a branch in the Republic of Cyprus.

Credit acquiring companies need to be licensed by the CBC.

The governor of the CBC has the power to impose administrative fines to persons who are not eligible and who are acquiring credit facilities. Such fines may be up to €250,000.

Sale of credit facilities

Prior to any sale of a credit facility, the credit or financial institutions shall:

  1. Publish its intention to buy the credit facility in the Public Gazette and three additional daily newspapers; or
  2. Notifies the borrower and their guarantor(s) with an option to purchase the under sale credit facility themselves and submit a proposal within forty-five days.

The seller of a credit facility shall report every six months to the CBC with the following information:

  1. Details for the number and amounts of credit facilities which have been sold to a credit acquiring company; and
  2. Details for the number and amount of credit facilities purchased by the borrower.

A credit facility that is transferred to any of the entities listed above, is deemed to be transferred to the purchaser on the date of the transfer all rights and obligations that derive from the credit facility agreement are automatically transferred and are valid between the transferee the borrower. It is further provided that all security created pursuant to the credit facility (including guarantees) are transferred to the purchaser. All rights, priority and obligations are also transferred to the purchaser as well as any documents that are in the possession of the transferor and are in connection with the credit facility being transferred.

The transfer of the credit facility does not affect (i) any on-going procedure that commenced pursuant to the Insolvency Individuals (Personal Plans Repayment and Debt Waiver Order) Law or the provisions of the Companies Law Cap 113 relating to examinership; or (ii) the right of the borrower to make an application under the Insolvency Individuals (Personal Plans Repayment and Debt Waiver Order) Law or to appoint an examiner under the provisions of the Companies Law Cap 113; or (iii) the Code of Conduct which is attached to the Arrears Management Directive 2015, of the Central Bank.

Once the transfer of the credit facility is completed the purchaser must notify, within five business days, the borrower about the transfer.


Eligible entities that are in breach of the provisions of the Law or any directives issued pursuant to the same may be subject to administrative fines of up to €250,000 and/or the revocation of their license.

Any entity breaching any of the provisions of the Law or any directives issued pursuant to the same and/or officer thereof may be criminally liable and subject to a fine of up to €250,000 each severally.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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