CENTRAL BANK OF CYPRUS

CONSOLIDATED DIRECTIVE TO CREDIT INSTITUTIONS ON THE PROCEDURES FOR GRANTING NEW AND REVISING EXISTING CREDIT FACILITIES

OCTOBER 2026

CONTENTS

PART I - TITLE, SCOPE, PURPOSE AND INTERPRETATIONS

1. Short title

2. Scope

3. Purpose

4. Interpretations

PART II - BASIC PRINCIPLES

5. Basic Principles

PART III - RESPONSIBILITY OF THE MANAGEMENT BODY

6. Responsibilities of the Management Body

PART IV - PROVISION AND COLLECTION OF INFORMATION FROM CIs

7. Pre-contractual Information to applicants

8. Offer letter

9. Obtaining sufficient information for granting and revising credit facilities.

PART V - ASSESSMENT OF APPLICATION FOR CREDIT FACILITY

10. Verification of the borrower's income

11. Documentation and retention of information

12. Identification and prevention of misinformation

13. Assessment of repayment capacity

14. Assessment of collateral

15. Pricing of new credit facility

16. Disbursement procedure

PART VI – REVISION OF EXISTING CREDIT FACILITIES

17. Reassessment of repayment capacity

18. Monitoring of the value of collaterals

PART VII – SPECIAL LENDING CASES

19. Loans in foreign currency

20. Grace period

21. Specialised lending

PART VIII – REAL ESTATE AND LAND DEVELOPMENT FINANCING PROCEDURES

22. Lending to real estate purchasers by land development companies.

23. Credit policies for loans to land development companies

PART IX – VALUERS AND VALUATION REPORT

24. Eligibility criteria for valuers

PART X – BEST PRACTICES

25. Governance

PART XI – SPECIAL PROVISIONS

26. Exceptions policy

27. Automated procedures

PART XII – FINAL PROVISIONS

28. Repeal of existing Directive

29. Entry into force

30. Date of Application

APPENDIX I – Pre-contractual Information

APPENDIX II – Financial information obtained from applicants

APPENDIX III – Assessment of application for granting credit facilities

APPENDIX IV – Personal Financial Statement (PFS)

APPENDIX V - Financing to real estate purchasers by land development companies

APPENDIX VI - Minimum requirements for sector assessment

APPENDIX VII - Valuation report

THE CREDIT INSTITUTIONS BUSINESS LAWS OF 1997 TO 2026

Directive pursuant to article 41

66(I) of 1997	The Central Bank of Cyprus, exercising the powers
74(I) of 1999	conferred on it, pursuant to article 41 of the Credit Institutions
94(I) of 2000	Institutions Laws of 1997 to 2026, issues this Directive
119(I) of 2003	to the Licensed Credit Institutions and the Credit Institutions which
4(I) of 2004	operate in the Republic by virtue of article 10A of the said
151(I) of 2004	Law.
231(I) of 2004
235(I) of 2004
20(I) of 2005
80(I) of 2008
100(I) of 2009
123(I) of 2009
27(I) of 2011
104(I) of 2011
107(I) of 2012
14(I) of 2013
87(I) of 2013
102(I) of 2013
141(I) of 2013
5(I) of 2015
26(I) of 2015
35(I) of 2015
71(I) of 2015
93(I) of 2015
109(I) of 2015
152(I) of 2015
168(I) of 2015
21(I) of 2016
5(I) of 2017
38(I) of 2017
169(I) of 2017
28(I) of 2018
89(I) of 2018
153(I) of 2018
80(I) of 2019
149(I) of 2019
21(I) of 2020
73(I) of 2020
28(I) of 2021
94(I) of 2021
95(I) of 2021
162(I) of 2021
163(I) of 2021
61(I) of 2022
62(I) of 2022
162(I) of 2022
17(I) of 2023
59(I) of 2024
158(I) of 2024
14(I) of 2025
84(I) of 2026.

PART I - TITLE, SCOPE, PURPOSE AND INTERPRETATIONS

Short Title
E.E. Par.III (I):
18.3.2016
No. 4933
C.D.P. 74/2016
16.9.2016
No. 4964
C.D.P. 259/2016
3.2.2017,
No. 4994
C.D.P. 41/2017
9.8.2019
No. 5177
C.D.P. 274/2019
19.3.2020
No. 5221
C.D.P. 106/2020
11.2.2022
No. 5667
C.D.P. 61/2022
25.11.2022
No. 5756
C.D.P. 452/2022
28.04.2023
No. 5795
C.D.P. 128/2023
29.05.2026
No. 6026
C.D.P. 244/2026
9.10.2026
No.6052
C.D.P. 358/2026.

1. This Directive shall be cited as the Directive on the Procedures for Granting New and Revising Existing Credit Facilities of 2016 to (No.2) of 2026.

Scope of Application.

2.(1) This Directive applies to licensed credit institutions (LCIs) and credit institutions operating in the Republic by virtue of Article 10A of the Credit Institutions Business Laws of 1997 to 2026, which for the purposes of this Directive shall all be referred to as credit institutions or CIs.

(1A) This Directive does not apply to credit agreements concerning syndicated loans.

(2) This Directive does not replace the detailed credit policies and procedures that CIs must have, as determined in the Central Bank of Cyprus Circular Directive dated 25 July 2008 on “Guidelines to Banks Regarding Credit Risk Management”.

(3) The Central Bank may require a specific CI to apply stricter assessment criteria, if significant weaknesses are observed.

(4) The Central Bank may, for the purpose of avoiding a possible financial crisis and/or managing emergency situations in the economy for the protection of financial stability, permit, by issuing circulars to CIs for a specified period of time, the non-application of specific or all provisions of this Directive and/or determine specific alternative minimum conditions for granting credit facilities.

Purpose. 3. The purpose of this Directive is:

(a) To establish the best practices which CIs must apply during the process of assessing applications for the granting of new and during the revision of existing performing credit facilities.

(b) To provide an indicative list of the supporting documents which CIs should examine whether they should be obtained during the process of assessing the application for granting a new credit facility or revising existing performing credit facilities, always applying the principle of proportionality taking into account the complexity and risks per case and exercising judgment on the completeness and adequacy of the information that is readily available. and

(c) To transpose the minimum requirements regarding the assessment of the creditworthiness of borrowers, as provided in the EBA guidelines on creditworthiness assessment of 19 August 2015.

Interpretations. 4. (1) In this Directive, unless the context otherwise requires-

a different meaning-

“credit analyst” means the employee of the CI who is authorised to conduct the assessment of the application for granting a new or the revision of an existing credit facility.

“durable medium” means any medium that allows the storage of information in a form that is directly accessible for future reference for a period of time sufficient for the purposes served by the information and which allows the accurate reproduction of the stored information.

“competent District Land Registry Office” has the meaning attributed to this term in the Transfer and Mortgage of Immovable Property Laws of 1965 to (No. 2) of 2026.

“loan approval authority” means a committee or any other competent persons of the credit institution who have been authorised by the governing body to approve the granting, disbursement and renewal of credit facilities.

“foreign currency loan” means, for the purposes of this directive, a credit facility agreement which:

(a) is expressed in a currency different from the currency in which the borrower receives his income or maintains his assets from which the credit facility is to be repaid,

(b) is expressed in a currency different from the currency of the state of residence of the borrower,

Point (b) does not apply in cases of granting credit facilities to legal persons when the credit facility is expressed in the same currency as that in which the legal person receives its income or maintains its assets from which the credit facility is to be repaid∙

“audit” means audit as provided in Article 152A∙

“review” means the review in accordance with the International Standard on Review Engagements∙

“European loan” means a credit facility subsidised by European funds·

“syndicated loan” means a type of lending in which a group of credit institutions collectively provides a loan to a borrower.

“gross exposure” means the sum of funded and unfunded commitments taken.

“Law” means the Credit Institutions Business Law of 1997 to 2016 .

“credit facility” means the granting to a borrower of a loan or an overdraft current account limit or a financial guarantee and includes the discounting of a promissory note or bill of exchange for which the borrower is liable either as acceptor or as endorser, the assumption of financial responsibility or obligation on behalf of a borrower, the assumption of an obligation to grant any of the above and includes any of the above acts given for the benefit of a third party with the guarantee of the borrower.

Official
Journal of the
E.U.: L124,
20.5.2003, p..36.

“micro-enterprise” has the meaning attributed to this term by Article 2, paragraph 3, of the Annex to the Commission Recommendation of 6 May 2003 concerning the definition of micro-enterprises (2003/36/EC)·

“connected persons” shall have the meaning of the term “group of connected persons” as defined in point (39) of Article 4 of Regulation (EU) No 575/2013.

“total annual burden rate” or “TABR” means the total annual burden rate calculated in accordance with the methodology set out in Annex 1(D).

(2) Terms not defined in this Directive shall have the meaning given to them by the Law.

ΜΕΡΟΣ ΙΙ - ΒΑΣΙΚΕΣ ΑΡΧΕΣ

Basic principles. 5. (1) The basic principle for the assessment of the granting of a new and for the

review of an existing credit facility is the determination of the borrower's repayment capacity.

(2) The value of the guarantees does not constitute a determining factor for the assessment by the credit institution of the application for the granting of a credit facility. The guarantee is used only as a secondary source of repayment and as such it should be assessed.

(3) Credit institutions ensure that the applicant's contribution rate is satisfactory and reflects the risk level of the credit facility.

PART III - LIABILITY OF THE ADMINISTRATIVE BODY

Ευθύνες
Διοικητικού
Οργάνου.

6. The administrative body of the credit institution ensures that:

(1) The provisions of this Directive are incorporated into the credit institution's internal guidelines, policies and procedures and are communicated in a transparent and clear manner to all staff directly engaged in activities covered by this Directive.

(2) there are sound procedures for assessing the ability of the borrower to meet the obligations arising from existing and new credit agreements, that those procedures are reviewed at regular intervals and that up-to-date records of those procedures are kept.

(3) the policies and procedures for monitoring credit facilities are proportionate to the level and complexity of those credit facilities.

(4) the staff involved in the procedures for granting and reviewing credit facilities is sufficient in terms of permanent employment and appropriately trained and experienced, so as to properly apply the provisions of this Directive.

(5) the information technology systems facilitate and support the effective implementation of the procedures for granting and reviewing credit facilities, as provided for in the credit policy of the credit institution and in this Directive.

(6) the policy for granting and reviewing credit facilities and the implementation of the provisions of this Directive form part of the regular audit programme of the internal audit department of the credit institution; and

(7) the implementation of the provisions of this Directive forms part of the regular audit programme of the external auditors of the credit institution.

PART IV - PROVISION AND COLLECTION OF INFORMATION BY THE CIs

Προ-συμβατική
ενημέρωση προς
τους αιτητές.
Παράρτημα Ι

7. (1) Credit institutions must provide applicants for a credit facility with all the necessary explanations regarding the characteristics and risks involved in the credit facility, must explain and provide to the applicant and, where applicable, to guarantors and providers of security, the information which is based, as the case may be and always applying the principle of proportionality, on the elements set out in the table of Annex I, except:

(a) Στις περιπτώσεις πιστωτικών διευκολύνσεων που εμπίπτουν στο πεδίο εφαρμογής των Περί Συμβάσεων Καταναλωτικής Πίστης Νόμων του 2010 έως (Αρ 2) του 2013 ή των Περί Καταναλωτικής Πίστης (Συμφωνίες Στεγαστικών Δανείων και Ενοικιαγορών) Νόμων του 2001 έως 2010, όπως αυτοί εκάστοτε τροποποιούνται, διορθώνονται ή αντικαθίστανται, όπου τα πιστωτικά ιδρύματα συμμορφώνονται με τις πρόνοιες των εν λόγω Νόμων χρησιμοποιώντας έντυπα που τυχόν καθορίζονται στους εν λόγω Νόμους .

(b) στις περιπτώσεις που ο αιτητής πιστωτικής διευκόλυνσης είναι νομικό πρόσωπο, που δεν εμπίπτει στον ορισμό της πολύ μικρής επιχείρησης, τα πιστωτικά ιδρύματα δύναται να προχωρούν με επιστολή προσφοράς, η οποία περιλαμβάνει πλήρη ενημέρωση για την πιστωτική διευκόλυνση και τους όρους και τις προϋποθέσεις υπό τις οποίες θα χορηγηθεί η πιστωτική διευκόλυνση.

(c) στις περιπτώσεις που ο αιτητής πιστωτικής διευκόλυνσης είναι νομικό πρόσωπο που εμπίπτει στον ορισμό της πολύ μικρής επιχείρησης, τα πιστωτικά ιδρύματα δύναται να προχωρούν με επιστολή προσφοράς, η οποία περιλαμβάνει πλήρη ενημέρωση για την πιστωτική διευκόλυνση και τους όρους και προϋποθέσεις υπό τις οποίες θα χορηγηθεί η πιστωτική διευκόλυνση, εκτός αν ο αιτητής ζητήσει προ-συμβατική ενημέρωση.

(d) στις περιπτώσεις που η πιστωτική διευκόλυνση αφορά συνολικό ποσό πίστωσης που δεν υπερβαίνει τις πέντε χιλιάδες ευρώ (€5.000) όπου τα πιστωτικά ιδρύματα δύναται να προχωρούν με επιστολή προσφοράς, η οποία περιλαμβάνει πλήρη ενημέρωση για την πιστωτική διευκόλυνση και τους όρους και προϋποθέσεις υπό τις οποίες θα χορηγηθεί η πιστωτική διευκόλυνση.

(2) An applicant who is provided with pre-contractual information is given a reflection period of ten (10) working days, calculated from the day on which the pre-contractual information was provided, the characteristics of which are the same as those in the binding offer, so that the applicant is given the opportunity to compare the information received from various credit institutions, to thoroughly assess the requirements, risks and consequences of the new credit facilities that he intends to undertake in order to take an informed decision that he will be able to service them.

106(Ι) του 2010
176(Ι) του 2012
40(Ι) του 2013
50(Ι) του 2013.
39(Ι) του 2001
166(Ι) του 2001
34(Ι) του 2002
77(Ι) του 2002
33(Ι) του 2004
92(Ι) του 2007
126(Ι) του 2009
107(Ι) του 2010.

It is understood that in a case where the applicant is satisfied with the pre-contractual information received, he may inform the credit institution that he accepts to proceed with the conclusion of a contract for the requested credit facility, before the completion of the period of ten (10) working days.

(3) The provisions of this paragraph apply by analogy also in relation to the credit facility that was requested.

(4) In the event that personal guarantees are taken, credit institutions must inform the potential guarantors of the obligations arising from their guarantee. This information must be provided together with the information required in accordance with the Protection of Certain Categories of Guarantors Laws of 2003 to 2015.

197(I) of 2003
8(I) of 2004
7(I) of 2006
58(I) of 2015.

Letter of offer of credit facilities.

8.(1) An applicant, who is provided with pre-contractual information, who has decided to proceed with the credit facility, is subsequently also provided with an offer that is binding for the credit institution. The relevant offer letter is provided in writing or on another durable medium.

(2) In the event that the characteristics in the offer letter are different from the pre-contractual information that had been previously provided to the applicant, the credit institution either:

(a) provides pre-contractual information anew, or

(b) indicates to the applicant the differences between the pre-contractual information and the offer letter.

(3) Credit institutions specify in the offer letter the period for which the offer is valid and in the event that pre-contractual information has not been previously provided the characteristics of which are the same as those of the offer letter, they provide a study period of at least five (5) working days before the conclusion of the contract.

It is understood that the borrower has the possibility to accept the offer and to proceed with the conclusion of the contract for the requested credit facility at any time during the study period of five (5) working days.

(4) Credit institutions specify in the offer letter, in the event that the applicant accepts the offer, the period provided to the applicant for the exercise of the right of withdrawal after the conclusion of the credit contract.

It is understood that the credit facility is not activated before the expiry of the withdrawal period or before the exercise of the right of withdrawal, whichever comes first.

Obtaining sufficient information for granting and review of credit facility.

9.(1)(a) For both the granting procedures and the review procedures of credit facilities, credit institutions must collect sufficient information and evidence in order to assess the income of the applicant/borrower, the ability to repay new and existing credit facilities, the value of the collateral, where applicable, and, as regards new credit facilities, to ascertain the purpose and appropriately assess the new risks they undertake.

(b) When deciding on the extent of the evidence and information to be requested from applicants and borrowers, for the purposes of subparagraph (a), the credit analyst must always exercise his judgment taking into account the complexity of each case, the assessment of risks and the sufficiency of the information and documents already available.

Annex II

(2) The financial data and documents referred to in subparagraph (1), which the credit institution may use as evidence of the income and the ability to repay of the applicant / borrower and which may be requested directly from the applicant / borrower, include those listed in Annex II.

(3) Credit institutions must seek to obtain from the System or Mechanism for the Exchange, Concentration and Provision of Data, which has been established under the Law, the following data regarding the credit facilities which the applicant or borrower enjoys from third parties:

(a) Initial amount or limits of credit facilities, as applicable.

(b) Current balance.

(d) Amount of instalments, frequency of payment of the instalment and grace period, if any.

(e) Amounts and days of delays, if any.

(f) Collaterals, where they exist.

(4) Credit analysts must obtain information from any other source that could be useful for the assessment of the ability to repay of the applicant / borrower, including the following:

(i) Information from the domestic market.

(ii) Information from the Central Information Register for Issuers of Uncovered Cheques (CIR).

PART V – ASSESSMENT OF APPLICATION FOR CREDIT FACILITIES

Verification of the income of the borrower.

10. (1) When assessing the prospect of the borrower to meet the obligation arising from the credit contract, the credit institution must make reasonable inquiries and take reasonable measures to ascertain the level of income of the borrower, the income history of the borrower and any fluctuation over time.

(2) In the case of borrowers who are self-employed or have seasonal or other irregular income, the credit institution must make reasonable inquiries and take reasonable measures to verify the information related to the ability of the borrower to meet the obligations arising from the credit contract.

Documentation and retention of information.

11. (1) The credit institution maintains complete documentation of the information that leads to the approval of credits and must maintain this documentation at least for the duration of the credit contract.

(2) The credit institution ensures that a file with sufficient explanations regarding income verification and the assessment of repayment capacity is directly available to the Central Bank.

Identification and prevention of misinforma tion.

12. For the reliable conduct of creditworthiness assessments, the credit institution must design the loan documentation requirements in a way that any distortion of information by the borrower and by the staff of the credit institution involved in the assessment of the application is easily identified and prevented.

Assessment of repayment capacity.
Annex III

13. For the purposes of assessing the repayment capacity of applicants, natural and legal persons, credit institutions follow, as the case may be, the procedure described in Annex III.

Assessment of collateral.

14.(1) (a) The repayment capacity of a credit facility is the main criterion for the decision on any financing. During the process of assessing the applicant's ability to repay their credit facilities, the credit institution must place emphasis on the applicant's current income and future cash flows and not on the available collateral.

(b) Collateral by itself must in no case constitute a criterion for the approval of a credit facility and cannot by itself justify the approval of any credit facility. Collateral is considered only as an alternative recourse of the credit institution in the event of default and not as the primary source of repayment.

(2) Credit facilities are secured only as a safety net in the event of future adverse deviations in the borrowers' ability to service their loans.

(3) Credit institutions ensure that:

(a) each collateral is taken exclusively to secure specific credit facilities;

(b) in no case should collateral be used to cover "all existing and future" obligations of the borrower, whether these arise from other credit facilities granted to the said borrower or from credit facilities secured by the borrower; and

(c) upon repayment of the secured credit facility, the relevant collateral is released immediately, unless it concerns collateral by mortgage on immovable property for which the deadline provided in the Transfer and Mortgage of Immovable Property Laws of 1965 to 2025, as amended or replaced from time to time, applies (the "Transfer and Mortgage of Immovable Property Laws"), and where applicable, the title is returned to the borrower or to the holder of the collateral.

9 of 1965
51 of 1970
3 of 1978
6 of 1981
181(I) of 2002
59(I) of 2006
122(I) of 2007
52(I) of 2008
26(I) of 2010
120(I) of 2011
142(I) of 2014
197(I) of 2014
4(I) of 2015
27(Ι) of 2015
32(Ι) of 2015
42(Ι) of 2015
46(Ι) of 2015
53(I) of 2015
75(I) of 2015
76(Ι) of 2015
133(I) of 2015
139(I) of 2015
198(I) of 2015
87(I) of 2018
118(I) of 2019
138(I) of 2019
61(I) of 2020
195(I) of 2020
212(I) of 2020
98(I) of 2021
185(I) of 2021
82(I) of 2022
147(I) of 2022
173(I) of 2022
204(I) of 2022
10(I) of 2023
65(I) of 2023
66(I) of 2023
76(I) of 2023
155(I) of 2023
4(I) of 2024
161(I) of 2024
110(I) of 2025
76(I) of 2026
101(I) of 2026.

The provisions of subparagraph (3) of this paragraph shall not apply where the mortgaged debtor has consented in writing to the non-discharge of the mortgage on immovable property. In the event of a subsequent written revocation of the consent, the mortgage creditor shall ensure the discharge of the mortgage within the time limit provided in the Transfer and Mortgage Laws, which begins from the date of written revocation.

(4) Credit institutions may, by way of exception to the provisions of subparagraph (3), take collateral to cover all existing and future credit facilities of the same borrower provided that all of the following conditions are met:

(a) the object of the collateral belongs to the borrower and not to another third party, and

(b) any advantages arising from the extension of the collateral coverage to the borrower's future credit facilities are clearly recorded in the contract, and

(c) the borrower declares in writing that the advantages referred to in point (b) have been adequately explained to him and that he accepts them.

(5) Credit institutions must specify in their credit policy the amount and type of collateral that is appropriate to be required for the various types of credit facilities.

(6) Credit institutions must include in their credit policies adequate guidance on how the value of collateral of assets pledged for various credit institutions is assessed. These policies must ensure that the value attributed to such collateral is assessed prudently, is based on the provisions concerning the ranking of priorities, takes into account the total amount of credit facilities at all relevant credit institutions, and that there are safeguards to prevent double counting.

(7) Where the credit facility is expressed in a foreign currency, the credit institution, where applicable, must register the charge in the same currency as the credit facility.

(8) The registration of a floating charge on the company's assets, which is particularly suitable in cases of financing the company's working capital, must be proportionate to the level of borrowing.

Pricing of new credit facility.

15. The pricing of a new credit facility must reflect the credit institution's funding cost, legal and administrative expenses, the cost of capital, credit risk, liquidity risk and other actual costs of the credit institution.

Disbursement procedure.

16. Credit institutions shall establish appropriate controls to ensure that all conditions set out in the approval of the credit facility are met before each disbursement. In addition, credit institutions must ensure that:

(a) Subject to the principle of proportionality, there is adequate separation of duties and responsibilities between the staff involved in the loan documentation process, the loan disbursement process and the approval processes.

(b) The loan contract is drafted in accordance with the terms of the approval and the offer letter given to the applicant and is duly signed by the applicant and, where applicable, by the guarantor and the provider of the collateral.

(c) All other required documents (for example mortgage documents, property insurance, cash pledge) are checked for the purposes of full compliance with the loan approval terms, are completed and duly signed by all involved parties before the disbursement of the loan.

(d) In the case of a loan with partial disbursements, the relevant provisions of this Directive must then be applied.

PART VI – REVIEW OF EXISTING CREDIT FACILITIES

Reassessment of repayment capacity.

17. (1)(a) Credit institutions must review credit facilities at regular intervals, depending on the risk level of the borrower and the sector in which it operates.

(b) Credit institutions may use automated procedures for the review of accounts of natural persons who present regular cash inflows into their accounts.

(c) In the case of borrowers that are legal persons, the credit institution, based on its assessment regarding the complexity and the risks involved, shall carry out a review every year.

(d) In the case of natural persons without regular inflows into their accounts, the review is conducted, indicatively, as follows:

(i) every two years for natural persons with total exposures equal to or exceeding three hundred thousand euros (€300.000), and

(ii) every three years for natural persons with total exposures of less than three hundred thousand euros (€300.000).

(2) (a) Credit institutions must inform the borrower of the upcoming review process and provide a reasonable time limit for the submission of the relevant documents.

(b) Credit institutions must ensure that the depth of the review is proportionate to the category of the borrower, the risk level and the total amount of its credit facilities.

(3) During the review process, credit institutions must reassess the borrower's ability to repay its credit facilities to the credit institution and to other credit institutions, taking into account also other non-banking obligations and commitments, such as for example tax obligations; For this purpose, and depending on the risk level of the borrower and on the previous performance and prospects of the sector in which the borrower operates, credit institutions must:

(a) in accordance with the provisions of paragraph 9(1), to receive updated information regarding the borrower, such as demographic data, financial and tax information, information about their business as well as information in relation to any problems the borrower is facing;

(b) to analyse the financial information they receive and to update the credit assessment of the borrower;

(c) as the case may be, to reassess the value of the collateral concerning the borrower's credit facility in accordance with paragraph 14 and to comply with the provisions of Article 208 of Regulation (EU) No. 575/2013.

(4) In the case where the borrower is a member of a group of connected clients, the credit institution must review the credit facilities of the entire group.

E.E. Par. III(I)
No.4862,03.04.20
15, C.D.P.
107/2015.

(5)(a) The review process set out in this paragraph applies to borrowers with credit facilities that do not show overruns or delays. The review process of borrowers with credit facilities that show overruns / delays is governed by the provisions of the Directive on the Management of Delays of 2015.

(b) In the case of borrowers falling within the scope of the Code of Conduct annexed to the Directive on the Management of Delays, the credit facilities must be reviewed and the required financial information must be provided in accordance with the timetable provided for in the Code of Conduct.

Monitoring of the value of collateral.

18.Credit institutions regularly monitor the value of the collateral they hold. In cases of monitoring the value of collateral of performing loans, this monitoring does not burden the borrowers in any way.

(a) In the case of mortgages on immovable property, credit institutions must monitor the "Loan to Value" ratio (LTV), which is defined as the ratio:

Total amount of credit facilities secured by the specific property Market Value of the Property X 100%

In the calculation of the ratio the following are taken into account:

(i) Credit institutions may use the Property Price Index developed by the CBC for monitoring the value of residential and commercial properties.

(ii) Revaluations of properties, when deemed necessary in accordance with the provisions of Article 208 of Regulation (EU) No. 575/2013, may be carried out by independent valuers or by a department of the credit institution that is independent from the decision-making process for credit facilities. In both cases, the valuers must possess the required qualifications, ability and experience to conduct the valuation.

(iii) In the case of projects under construction, the monitoring must include:

o The cost of construction to date where the value of the property that will be used for the calculation of the LTV is the market value of the land plus the cost of construction to date.

o The revised cost of completion where the value of the property that will be used for the calculation of the LTV is the market value of the land plus the cost of construction to date plus the estimated remaining cost for completion.

o The market value of the project at the construction stage and

o The estimated market value upon completion of the construction works of the property.

(iv) The calculation of the construction cost does not include transfer expenses, mortgage fees, advertising costs, administrative expenses and other similar expenses.

(v) In the case of a mortgage by a borrower who purchases a property under development, the price that will be used for the calculation of the LTV during the monitoring process is the estimated market value of the property, if sold at the current construction stage.

PART VII – SPECIAL LENDING CASES

Loans in foreign currency.

19.(1) Credit institutions provide borrowers with sufficient information regarding the risks entailed by borrowing in foreign currency. This information must be sufficient to enable the borrower to take prudent and informed decisions and must include at least the effects on the loan instalments arising from fluctuations in exchange rates or from a serious depreciation of the currency of the borrower's income.

(2) In the case of borrowing in foreign currency credit institutions must examine and assess the additional credit risk as well as the additional risks entailed by borrowing in foreign currency, including, but without limitation, the risks from exchange rate fluctuation, the increase of interest rates and country risk.

(3)(a) When a credit facility concerns a loan in foreign currency, the borrower has the right to convert the credit facility agreement into a different currency which should be a currency in which the credit institution transacts and which is either:

(i) the currency in which the borrower primarily receives their income or holds their assets from which the credit facility is to be repaid, as demonstrated by the most recent assessment of their creditworthiness in relation to the said credit facility; or

(ii) the currency of the state in which the borrower either resided at the time of the conclusion of the agreement for the granting of the credit facility or resides at the present time.

It is understood that it is possible for specific terms to be agreed between the CI and the borrower regarding the conversion, subject to the provisions of this Directive and applicable legislation.

(b) The exchange rate at which the conversion is carried out for the purposes of subparagraph (a) is the exchange rate prevailing in the market on the day of submission of the application for conversion, unless otherwise provided in the credit agreement.

(c) In the event that the borrower has a loan in a foreign currency, the credit institution must warn the borrower in writing on a regular basis, at least when the amount of the total outstanding payable amount remaining or when the amount of the regular instalments differs by more than 20% compared to what it would have been if the exchange rate at the time of conclusion of the agreement between the currency of the credit agreement and the currency in which the borrower receives his income or maintains his assets from which the credit facility is to be repaid had applied. The warning must include information on the increase in the total amount payable by the borrower, specify the borrower's right to convert the credit facility into a different currency and the conditions for the conversion and explain any other mechanism for limiting the exchange rate risk to which the borrower is exposed.

(d) Credit institutions must disclose to the borrower the arrangements applied under this paragraph, in the pre-contractual information form and in the credit facility agreement. In the event that there is no provision in the credit facility agreement for limiting the exchange rate risk to which the borrower is exposed from exchange rate fluctuations lower than 20%, the offer letter must include an indicative example of the impact in cases of a 20% fluctuation of the exchange rate.

(e) Credit institutions must install an adequate IT system for the purposes of subparagraph (c) and to support the regular monitoring of foreign exchange risk. Credit institutions that do not have appropriate and reliable monitoring tools may not grant credit facilities in foreign currency.

(4) In the case of granting a loan in a foreign currency, credit institutions must encourage borrowers to seek advice in relation to hedging exchange rate risk.

(5) Products offered in a foreign currency should, where appropriate, also be offered in Euro.

Grace period. 20. (1) A grace period may be granted only in very exceptional

cases.

(2) Credit institutions must justify in detail the cases in which the repayment schedule of the credit facility includes a grace period.

(3) The grace period should not, in general, exceed twelve (12) months, except in cases of projects with a construction duration of more than twenty-four (24) months. In such a case, the grace period should not exceed the construction duration.

(4) Credit institutions must include in the loan agreement appropriate terms and conditions, which clearly determine the percentage of revenue arising from sales, which may be allocated to the construction cost as own contribution, and the percentage used for the repayment of the loans.

Specialised lending.

21. (1) Specialised credit facilities, such as shipping loans and syndicated loans, are defined as high risk and therefore require handling by a sufficient number of officers of the credit institution who possess the appropriate experience, qualifications and expertise to handle such lending.

(2) Credit institutions must have the appropriate credit policy for the assessment and approval of specialised loans, which must provide at least for the following:

(a) assessment of whether the prevailing market conditions are favourable for such lending,

(b) assessment of macro-economic factors,

(d) the use of a satisfactory technological information system and analytical tools, and

(e) installation of appropriate management information systems.

(3) The basis for calculating the interest of a European loan may be the same as the basis for calculating the interest of the financing of the corresponding European fund.

PART VIII – REAL ESTATE FINANCING AND LAND DEVELOPMENT PROCEDURES

Lending to purchasers of real estate by land development companies.
Appendix V

22. In order to ensure that the loan product granted to a borrower for the purchase of real estate from a land development company will be used for the repayment of the loan granted to the land development company, credit institutions must follow the procedure set out in Appendix V.

Credit policies for loans to land development companies.
Appendix VI

23. Credit institutions must apply appropriate and prudent credit policies for the granting of loans to land development companies or for the financing of projects, which support the stages of granting, disbursement and monitoring of loans. Appendix VI sets out the basic requirements that these credit policies must contain.

PART IX – VALUERS AND VALUATION REPORT

Eligibility criteria for valuers.

24. (a) Credit institutions must maintain an approved list of valuers based on appropriate selection criteria. Credit institutions must carry out continuous assessment of the performance of valuers and decide whether or not each valuer remains on the list.

(b) Credit institutions must review annually whether the valuers included in the list have appropriate and valid professional liability insurance.

(c) The valuation of real estate must be carried out by an independent valuer who is included in the credit institution's approved list of valuers, and the credit institution requires that valuers disclose whether they are connected to either the buyer or the seller of the property and whether they have any interest in the property being valued before accepting the valuation assignment.

(d) Credit institutions must set limits in relation to the number of valuations conducted by each valuer or valuation firm.

Appendix VII

(e) Credit institutions must have a clear policy and define procedures for assigning valuations to valuers and for evaluating the valuation. Appendix VII establishes the basic procedures concerning the assignment and evaluation of valuations.

PART X – BEST PRACTICES

Governance. 25. Credit institutions must endeavour to apply at least the following governance requirements when assuming credit risk:

(a) Subject to the principle of proportionality, credit institutions must ensure that there is adequate separation of duties between the staff involved in the process of granting credit facilities. In particular, credit analysts must not have any authority to approve the granting of loans.

(b) Targets must focus on the quality of credit and not on the expansion of the loan portfolio, and in no case should any target for expansion of the loan portfolio apply to the approval levels.

(c) Credit institutions must avoid approving overdrafts on accounts with an overdraft limit; instead, credit institutions may consider approving a temporary limit which must be reflected in their IT systems; approvals for temporary limits must be fully justified and their repayment must be closely monitored.

(d) Credit institutions must monitor the operation of overdraft accounts and if an overdraft account shows a continuous debit balance (hardcore borrowing) in relation to its limit, then this debit balance must be converted into a term loan with a regular repayment schedule.

PART XI – SPECIAL PROVISIONS

26. Credit institutions must determine in their credit policy whether they may consider and approve any credit facility which is not consistent with the general credit policy of the credit institution. In the event that credit institutions adopt this approach, they must include it in their credit policy and follow the "Exceptions Policy" procedure, for example, granting a housing loan to a borrower without stable income, but with significant irregular cash flows. Credit institutions must define detailed procedures and limits for the "Exceptions Policy", so that such exceptions are permitted only if they are prudent and have received explicit and reasoned approval from the competent approving authority; however, in no case should such exceptions introduce gaps in the lending policy of the credit institution.

27. The use of automated processes for certain retail banking products, such as credit cards, may contribute to minimizing operational costs and is not excluded by the provisions of this Directive. However, credit institutions must ensure that these processes lead to consistent and high-quality decisions. In such cases of automated processes, credit institutions must implement automated criteria for identifying credit events, which will act as warning indications that must be duly investigated by competent officers.

28. The Directive on the Procedures for Granting New Credit Facilities and the Procedures for Reviewing Existing Credit

Policy of exceptions.

Automated processes.

Repeal of existing

directive. Facilities Directive of 2013 is repealed.

Entry into force. 29. (1) Subject to the provisions of subparagraph (2), this Directive enters into force from the day of its publication in the Official Gazette of the Republic.

(2) The method of calculating interest on the basis of 365/365 days (366/366 days for leap years) in respect of credit facilities that do not fall within the definition of consumer, as the term "consumer" is defined in the applicable legislation, is implemented for new credit facilities from 1 April 2016.

(3) The Central Bank may grant, where it deems appropriate, a transitional period for compliance with a specific provision of the Directive.

Appendix I – See separate document

Appendix II – Financial information obtained from applicants

A. Financial information

The following financial information may be requested directly from the applicant/borrower in order to be used as evidence of the income and repayment capacity of the applicant/borrower in accordance with the provisions of paragraph 9:

(a) Natural persons - employees:

(i) Original payslips for the last three (3) months and

(ii) Supporting documents for any other stable income, for example, maintenance income, interest income, income from real estate, income from welfare benefits.

(b) Natural persons - Self-employed:

(i) Certificate of income from the applicant's accountant or auditor, or

(ii) Social insurance statement,

(iii) If registered in the Value Added Tax (VAT) registers, a copy of the VAT returns submitted from the date of the last balance sheet,

(iv) Supporting documents for any other income and

(v) Tax return.

(i) Financial statements of the last three (3) financial years which have been audited or reviewed. In the event that the applicant does not have financial statements for the last financial year which have been audited or reviewed, then financial statements of that year which have not been audited or reviewed shall be submitted.

(ii) All quarterly financial statements of the current year for listed companies.

(iii) All management accounts from the date of the last financial statements for unlisted companies.

(iv) Original of the two (2) most recent available income tax clearance certificates.

(v) Copy of Value Added Tax (VAT) returns submitted from the date of the last balance sheet, if registered.

(vi) Business plan with projected cash flows for the life of the project being financed, where applicable, and at least for the

next two (2) years for other cases. in all cases the plan is based on reasonable assumptions, including possible scenarios and stress scenarios, which are validated by the accountants / auditors.

(vii) Where applicable, details regarding the revenue expected to arise from the use of the requested loan, justifying the enhancement of the profitability and cash flows of the enterprise (for example if the additional borrowing will be used for the purchase of new facilities or the purchase of new mechanical equipment or additional raw materials).

(d) Project financing:

In the case of project financing, the project feasibility study, which is prepared by professionals, as the case may be, must include at a minimum:

(i) Project profitability study.

(ii) Cost analysis by quantity surveyor.

(iii) Business plan.

(iv) Future projections with analysis of assumptions. and

(v) Sensitivity and adverse scenario analysis in relation to both cost and revenue.

B. Supplementary information

Credit institutions must request from applicants the following documents, as the case may be:

(a) Loan application form fully completed and duly signed by the applicant.

(b) Documents proving the purpose of the loan, for example a written offer or proforma invoices or a private agreement for the purchase of a product/ service.

(i) Proof of down payment, where applicable.

(ii) Letter of intent for the release of the mortgaged property from the current owner and letter of intent of consent for the release from the credit institution as mortgagee, if applicable.

(iii)(a) For the property to be financed the credit institution ensures that the following documents are submitted at the latest before the first disbursement of the approved loan subject to the provisions of point (c) of this item (iii):

1. Title deed of the existing owner.

2. Building permit.

3. Town planning permit.

4. Letter of intent for the release of the mortgaged property from the current owner and letter of intent of consent for the release from the credit institution as mortgagee, if applicable.

(b) In the event that the property to be mortgaged is different from the property to be financed, the credit institution ensures that the title deed is submitted at the latest before the first disbursement of the approved loan.

(c) In cases of financing the purchase of immovable property where there is an updated title deed, at the time of transfer, in which no prohibition for voluntary transfer or/and mortgage is recorded, in a unit of a jointly owned building, the presentation of the title deed is accepted without the need to submit the building permit and the town planning permit regarding the jointly owned building.

It is understood that, in this case, and when the credit institution receives security over the said property, the credit institution obtains a valuation of the immovable property as provided in this Directive and the valuation report takes into account the specific plan kept at the competent District Land Registry Office and reflects the current state of the property in relation to it.

It is further understood that, where the financing concerns the purchase of a jointly owned building, the demolition and the construction of a new building, the credit institution ensures that before any disbursement concerning the construction works of the new building, the relevant building permit and town planning permit for the new building are submitted.

(iv) In the case of construction or completion of construction or renovation of a property, a detailed timetable and cost analysis signed by a professional quantity surveyor or other competent professional, as applicable. In the case of renovation or repair for an estimated total cost not exceeding €75.000, where no quantity surveyor or other competent professional is employed, the original invoices and payment receipts must be submitted by the applicant. The credit institution must make disbursements only on the basis of these documents.

C. Security information

(1) When the credit institution receives security over immovable property, then the credit institution:

(a) Obtains a valuation of the immovable property carried out by a valuer who is independent from the applicant and who must comply with the provisions of Part IX,

(b) carefully and thoroughly examines the property valuation report, and ensures that all factors affecting the value of the property have been taken into account, (c) in the event that the security is a property different from that for which the credit facility is granted, requires a valuation report for both properties,

(d) ensures that the property is adequately insured and that the insurance contract has been assigned in favor of the credit institution for the purposes of the credit facility, and

(e) in the case of a property under construction, requires contractor's insurance coverage that includes all risks involved, covers the entire construction period of the project, and is assigned to the credit institution for the purposes of the credit facility.

(2) (a) In the case where the credit institution registers a floating charge on the assets of a company, it must obtain an insurance contract for the adequate insurance of the assets under the floating charge, and ensure that the insurance contract is assigned in favor of the credit institution.

(b) In the case of registration of multiple floating charges by multiple credit institutions, the insurance contract must clearly demonstrate that the said contract has been assigned in favor of all credit institutions in proportion to the amounts of the floating charges and in the same order of priority as the registrations.

(3) In cases where personal guarantees are obtained, credit institutions must collect the documents referred to in Part A depending on whether the guarantor is a natural or legal person.

Annex III - Assessment of application for granting credit facilities

(paragraph 13)

A. Assessment of application

When assessing the repayment capacity of applicants, credit institutions must:

(1) (a) Assess the completeness of the financial data submitted by the applicant, and

(b) assess, exercising their judgment, whether the data presented in the financial information submitted by the applicant are reasonable.

(2) (a) Credit analysts have the responsibility to conduct the thorough assessment of the financial situation of the applicant and to clearly justify their proposal for approval or rejection of the application for granting credit facilities.

(b) Credit analysts and approval authorities must take into account the credit policy of the credit institution, its risk appetite, concentration limits and risk diversification efforts as well as the directives and circulars issued by the Central Bank.

(i) examine the income, future cash flows of the applicant and the source of repayment in order to assess the ability of the applicant to repay the credit facility:

(a) In the case where the applicant is a member of a group of connected persons, the assessment must be conducted at the group level, particularly in the case where the repayment of the loans depends on cash flows originating from other connected persons so as to avoid the transformation of a viable group into a non-viable group due to the granting of the new credit facility.

(b) Credit institutions must ensure that the ability of the borrower to meet its loan obligations is not based on an expected significant increase in its revenues, unless it provides sufficient evidence. In this context, they may take into account estimated future cash flows, only when there are available, reliable and reasonable assumptions.

(ii) assess the financial situation of the applicant, and where applicable, the financial indicators, for example the leverage ratio and the cost-to-income ratio.

(iii) calculate the credit rating / assessment of the applicant, where applicable.

(iv) in the case where the credit facility will be used for the financing of the purchase of an asset, assess whether the credit facility can be repaid during the useful life of the asset which is being financed. Therefore, the granting of credit facilities for the acquisition/construction of a residence must not combine within the same loan contract: the provision of amounts to finance other needs of the borrower, that is for consumer purposes or other purposes that do not concern the purchase/construction of the specific financed property and do not contribute to the increase of its value.

(v) take duly into account the prevailing market conditions and the assessment of their impact on the sector where the applicant operates as well as on the financial situation of the applicant itself.

(vi) assess other qualitative elements, such as, the corporate governance of the applicant, including the dividend policy, compliance with the requirements for the audit of financial statements and compliance with tax obligations.

(3) In their recommendation report, credit analysts must include a complete analysis of the repayment capacity of the applicant and in the case where the recommendation is positive it must be fully justified.

(4) The approval authority must fully justify its decision to approve or reject the application.

B. Loan servicing amount

Credit institutions must calculate the total loan servicing amount for each borrower, as follows:

(i) The loan servicing amount is defined as the amount of the installment of the loan to be granted, plus all other installments (loan installments, overdraft account and credit card installments) of existing credit facilities with the same and with other credit institutions.

(ii) The servicing amount of the overdraft account is calculated as follows: Account limit multiplied by the interest rate and divided by twelve (12).

(iii) For credit cards the installment amount is calculated as follows: Card limit multiplied by the interest rate and divided by twelve (12).

(iv) The debt servicing amount must be adjusted taking into account the long-term averages of the relevant interest rates for variable-rate loans, so that repayment capacity is possible even in cases of interest rate fluctuations.

C. Repayment capacity of natural persons

Credit institutions calculate the "Total Monthly Income" based on the calculations presented in Annex IV - Personal Financial Statement (PFS) of this Directive.

(1) For the purposes of calculating the total monthly income of self-employed / freelance professionals who do not have a monthly salary, credit institutions must use the annual income presented in the PFS and divide it by twelve (12).

(2) Credit institutions must verify the monthly income presented in the PFS with the documents submitted in accordance with paragraph 9. Income such as interest income, alimony and others such as overtime, tips and other extraordinary income, may be taken into account only if the credit institution has ascertained and verified with full satisfaction that they are stable and recurring.

(3) In the event that the duration of the loan extends beyond the expected retirement age of the borrower, the credit institution must take into account the adequacy of the borrower's potential income and their ability to continue to meet their loan obligations after retirement.

(4) In the event that the loan instalments increase gradually, then the credit institution must assess the repayment capacity in relation to the corresponding estimated future incomes.

(5) Credit institutions must assess whether the net available income is reasonable.

(a) When assessing the applicant's repayment capacity, the total debt servicing amount must be limited to 80% of the net available income.

(b) In the case of loans in foreign currency, the total debt servicing amount must be limited to 65% of the net available income.

(6) The net available income is calculated as the difference between the "Total Monthly Income" and the "Total Monthly Expenses" presented in the column "Monthly Average Charge" in the PFS.

(7) Credit institutions must ascertain, to the maximum extent possible, that the information presented in Annex IV is as accurate as possible. For this purpose, credit institutions must:

(i) take into account the relevant factors that could affect the borrower's ability to meet their loan obligations, without causing unjustified hardship and over-indebtedness. These factors may include, making every possible effort, other servicing obligations, their interest rates, and the balance of the said debt, information on any unpaid payments, as well as the relevant taxes and insurance;

(ii) make reasonable provisions for committed and other non-discretionary expenses, such as the borrower's actual obligations, taking into account the borrower's living expenses; and

(iii) make prudent provisions for possible negative future scenarios, including, for example, reduced income during retirement, the increase of reference interest rates in the case of a variable interest rate on mortgage loans, negative amortisation, payments

of balloon type (balloon payments) or deferred payments of capital or interest.

(8) (a) In cases where there is more than one debtor on a loan, the debt servicing amount is the total of the debt servicing amounts of all debtors for the credit facility.

(b) In the case where the co-debtor is a spouse, the assessment of repayment capacity and the calculation of the debt servicing amount should take into account the total income and expenses of the household and for this purpose a single PFS may be completed by the spouses.

D. Assessment of the repayment capacity of legal persons

For the purposes of assessing the repayment capacity of legal persons, credit institutions must examine all the financial data submitted by the applicant and obtained by the credit institution itself, namely:

(1)(a) During the assessment process, credit institutions must carefully examine, investigate and where possible document the sources of repayment, as presented in the forms submitted by the applicant.

(b) In the case of new projects, credit institutions must critically assess whether the assumptions and estimates of the cash flow forecasts expected to arise from the new projects are realistic, before relying on them for the assessment of repayment capacity.

(c) The projected cash flows must be compared with data from previous periods, as reflected in the borrower's financial statements which have been audited or reviewed. In cases where the borrower's forecasts for future cash flows deviate significantly from the actual data to date, then these forecasts should be supported by sufficient evidence and realistic assumptions.

(2) (a) Credit institutions calculate the borrower's debt servicing amount so as to assess whether the borrower will be able to service the new and existing credit facilities.

(b) The debt servicing amount should be calculated, to the maximum extent possible, for the entire duration of the credit facility, based on the projected cash flows.

(3) (a) Credit institutions must incorporate the requirements for conducting scenario analysis into their credit policy and define a range of scenarios that may be appropriate in different circumstances.

(b) Credit institutions must carry out various scenarios in order to assess the borrower's repayment capacity and must take into account their impact in the decision-making process.

(i) The effects on the debt servicing amount due to an increase in the base interest rate, such as for example assuming that interest rates move towards the level of the long-term average of lending interest rates;

(ii) A decline in the applicant's estimated cash flow generation capacity, according to the most likely and the worst-case scenario in which all negative consequences are combined;

(iii) The impact on the amount owed due to a negative change in the exchange rate of at least 20%;

(iv) In the case of financing a new project, the simultaneous decrease in the estimated revenue from sales with the increase in the estimated construction cost, according to the most likely and the worst-case scenario in which all negative consequences are combined;

ANNEX IV – Personal Financial Statement (PFS)

-– See separate document

ANNEX V - Financing to real estate buyers by land development companies

1. If the buyer and the land development company are borrowers of the same credit institution:

(a) the credit institution must credit the proceeds from the loan granted to the buyer to the loan account related to the specific project of the land development company;

(b) the credit institution must provide confirmation of the transaction to the buyer and keep a copy in the loan file of the land development company.

2. If the buyer and the land development company are not borrowers of the same credit institution:

(a) the credit institution of the land development company must inform the credit institution of the buyer about the loan account of the land development company related to the specific project and which is secured by a mortgage on the property purchased by the borrower.

(b) The credit institution granting the loan to the buyer must, after each disbursement from the buyer's loan, transfer the disbursement amount, either by remittance or by bank cheque, to the account of the land development company as indicated by the credit institution of the latter;

3. In the case of a remittance, the credit institution of the buyer must state the payment details in the name of the buyer, the name of the land development company, the loan account number of the land development company and details of the project. In the case of issuing a bank cheque the credit institution must accompany it with a letter stating the name of the buyer, the name of the land development company, the loan account number of the land development company and details of the project.

4. The credit institution of the land development company, after receiving the remittance/cheque, must inform the buyer and the credit institution of the buyer with a letter confirming that the said amount has been credited to the "Mortgage Loan" account of the land development company from which the specific project is financed. The credit institution of the buyer must keep the letter in the buyer's loan file together with a copy of the remittance or cheque.

ANNEX VI - Minimum requirements for sector assessment

1. Minimum requirements for sector assessment:

(a) description of the risks entailed in these types of financing;

(b) the examination and assessment by the risk management committee of the prevailing market conditions and whether they are favourable for this type of development;

(c) the assessment by the Risk Management Committee of the macroeconomic factors that may affect market conditions in the short, medium and long term;

(d) the Risk Management Committee must analyse and explain to the responsible approving authorities and to the staff involved in the assessment for the granting of credit facilities to land development companies, the assessments provided for in points (a) to (c).

2. Minimum operational requirements

Credit institutions must ensure that:

(a) the staff involved in the assessment for the granting of credit facilities to land development companies has the appropriate experience, qualifications and expertise to handle such lending;

(b) there are procedures for the involvement of the borrower's Quantity Surveyor and that a report is required which sets out the following information:

(i) the estimated total duration of the construction.

(ii) the estimated duration of each stage of the construction or phase of the project.

(iii) estimate of the detailed cost of the project

(c) disbursements from the loan may be made only upon request by the borrowers and must be accompanied by a project progress certificate prepared by the Quantity Surveyor.

(d) the competent approving authority must examine the following before taking a decision to approve each disbursement:

(i) the borrower's own contribution is in accordance with the terms of the loan agreement;

(ii) the revenue from the disbursements to date was used for the purposes of the project and in accordance with the certificate of completion cost prepared by the Quantity Surveyor and verified by the borrower's accountant,

(iii) comparison of the cost at the completion stage with the budgeted cost up to that stage, as prepared by the Quantity Surveyor and verified by the borrower's accountant with justification for any deviations and explanations of how they are financed,

(iv) the realism of the proposed method of financing any cost overruns and an assessment of the resulting profitability and viability of the project, in order to enable immediate corrective actions to be taken,

(v) that loan disbursements do not cover cost overruns mainly to avoid a situation where the loan has been fully disbursed but the project has not been completed.

(e) that there are indications of close monitoring of the progress of the project's sales as well as the related receipts and that all sales revenues are deposited in the loan account of the project being financed,

(f) that there is a management information system (MIS) that facilitates and supports the monitoring of the rate of completion of construction compared with the different deadlines set in the timetable provided by the Quantity Surveyor.

ANNEX VII - Valuation report

The procedures of credit institutions concerning the assignment and evaluation of valuations may include the following:

(a) The instructions to valuers must be clear and in writing.

(b) Valuation reports must be addressed to the credit institution and not to the borrower, but copies of the valuation reports must be given to the borrower by the credit institution.

(c) Valuations must be carried out in accordance with the RICS valuation standards (Red Book) or on the basis of the European Valuation Standards (Blue Book) or on the basis of the International Valuation Standards (White Book).

(d) Credit institutions must assess the appropriateness of the valuation method. Depending on the type of property, the appropriate valuation method must be selected, which must be expressly stated in the valuation report (for example a hotel may be valued on the basis of the replacement cost method or the future profitability method).

(e) There must be clear indications that the valuer carried out an on-site inspection of the property for the purposes of the valuation.

(f) The valuation process may be standardised so that its comparison and the precise analysis of the project / property is possible.

(g) In the event of a significant change (whether positive or negative), for example a change in town planning zones or the building permit, a revaluation is required.

(h) Any expenses for valuations carried out during the credit facilities review process shall be borne by the credit institution, unless otherwise specified in the loan agreement.

(i) Credit risk management officers, rating teams and approval authorities must be appropriately trained to understand and evaluate valuation reports, in particular as regards references to restrictions on the sale of the property.

(j) Credit institutions must establish criteria for cases in which more than one valuation must be obtained. The criteria must take into account both the amount of the credit facility and the value of the property.

(k) In the case of granting credit facilities for the financing of land or project development, the valuation report must clearly state the values and the main characteristics of each unit if that unit is to be sold separately and the value if the entire project is to be sold.