Unofficial Consolidation of the Arrears Management Directives of 2015 to (No.2) of 2026

CENTRAL BANK OF CYPRUS
UNOFFICIAL CONSOLIDATION OF THE ARREARS MANAGEMENT DIRECTIVES OF 2015 TO (No.2) OF 2026 JUNE 2026

THE LAWS ON CREDIT INSTITUTIONS OPERATIONS
OF 1997 TO 2026
Directive pursuant to Article 41
66(I) of 1997
74(I) of 1999
94(I) of 2000
119(I) of 2003
4(I) of 2004
151(I) of 2004
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.
The Central Bank of Cyprus, exercising the powers conferred upon it by paragraphs (1) and (2) of Article 41 of the Laws on Credit Institutions Operations of 1997 to 2026, issues this Directive.

PART I – GENERAL PROVISIONS
Short Title
Official Gazette, Part III (I):
3.4.2015
(G.D.P. 107/2015)
Official Gazette, Part III (I):
31.7.2020

This Directive shall be known as “the Arrears Management Directives of 2015 to (No.2) of 2026”.

(G.D.P. 339/2020)
Official Gazette, Part III (I):
25.11.2022
(G.D.P. 451/2022)
Official Gazette, Part III (I):
28.4.2026
(G.D.P. 204/2026)
Official Gazette, Part III (I):
2.6.2026
(G.D.P. 254/2026).
Scope. 2. The provisions of this Directive apply to all credit institutions licensed by the Central Bank of Cyprus, in accordance with Article 4(1) of the Laws on Credit Institutions Operations of 1997 to 2026, and to all branches of credit institutions of other Member States operating in the Republic, in accordance with the provisions of Article 10A of the aforementioned Law, unless corresponding provisions have been established in the regulatory framework by the competent authority of another Member State. Purpose. 3. The purpose of this Directive is for Credit Institutions (CIs) to implement efficient and effective strategies, policies, structures, procedures, and mechanisms for the management of arrears and to achieve fair and viable restructuring of loans to borrowers facing financial difficulties, with the ultimate aim of addressing the economic difficulties caused by the economic crisis experienced by the Republic of Cyprus. Interpretation. 4. For the purposes of this Directive, the interpretations referred to in the Law apply, unless a different meaning arises from the text. Additionally, the following interpretations apply, unless a different meaning arises from the text:
“licensed credit institution” or “CI” has the meaning attributed to this term by Article 2 of the Law and also includes, subject to the provisions of paragraph 2, branches of credit institutions of another Member State operating in the Republic pursuant to Article 10A of the Law. “restructuring” means any action by a CI that results in changes to the terms and/or conditions of a loan, and aims to address existing or expected difficulties in the borrower’s servicing of the loan according to the existing repayment schedule. “borrower” means a natural or legal person to whom the CI has provided one or more loans. “borrower facing financial difficulties” means a borrower whose financial situation has deteriorated to such an extent that they are or may not be able to service their loans according to the contractual repayment schedule. “review” means a review as provided for in Article 152A; “supervision” means supervision in accordance with the International Standard of Supervisory Reviews; “days” means calendar days. “arrears” means loans in arrears when the borrower has not made full payment of the loan installment by the due date, and also includes overdrafts. “primary residence” means a house or apartment that the borrower uses as their home and may include a plot or share of a plot on which the borrower’s primary residence is under construction or will begin to be constructed in due course. “Law” means the Laws on Credit Institutions Operations of 1997 to 2015, as amended or replaced from time to time. “overdraft” means the amount of the overdraft account balance that is greater than the approved limit of the overdraft account. “loan” means:
(i) a loan,
(ii) a current account with an overdraft limit, and a debit balance in an account without a limit, (iii) a revolving credit facility, financial leasing, hire purchase financing, and credit card, (iv) discounting of a promissory note or bill of exchange, payment against a confirmed credit, payment against a letter of guarantee, advance payment for goods in storage warehouses, and advance payment against a letter of commitment, and (v) any other direct credit facility.

PART II – ARREARS MANAGEMENT STRATEGY
Arrears Management Strategy.
5. Each CI must develop an arrears management strategy, in accordance with the Framework for the Management of Arrears in Annex 1 of this Directive, which includes at least:
(a) the arrears management policy for each category of loans, (b) appropriate governance structures and control mechanisms regarding the management of arrears, (c) provisions for the classification of loans, (d) a clear and defined approach for each category of loans, (e) the organizational structure for the arrears management process, (f) provisions for the procedures, mechanisms, and systems, including information requirements, for the management of arrears, (g) restructuring options and their implementation framework, (h) provisions for the faithful implementation of the Code of Conduct for the Handling of Borrowers Facing Financial Difficulties who fall within the scope of this Code (hereinafter “eligible borrowers”) as provided for in Annex 2 of this Directive, and (i) provisions for the evaluation and measurement of effectiveness as well as the determination of targets. Arrears Management Unit.
6. (1) Each CI must establish and operate an independent, centralized Arrears Management Unit, as provided for in Annex 1 of this Directive.
(2) The degree of centralization and the corresponding structure of the Arrears Management Unit is determined based on the specificities of each CI and the principle of proportionality.
(3) The Arrears Management Unit handles the effective monitoring of arrears and the conduct of loan restructuring for borrowers facing financial difficulties.

PART III – DISPUTE RESOLUTION PROCEDURE
Dispute Resolution Procedure.
7. (1) Each CI must establish an independent internal dispute resolution procedure arising from objections submitted by eligible borrowers regarding restructuring, which specifically includes the establishment of a Dispute Resolution Committee whose members are independent from the CI’s credit, monitoring, and restructuring management services, and whose chair is a senior executive of the CI, in order to handle the aforementioned objections impartially and without any conflict of interest, as provided for in Annex 1 of this Directive.
(2) The dispute resolution procedure must comply with the provisions of the Code of Conduct for the Handling of Borrowers Facing Financial Difficulties.
(3) Each CI publishes on its website and notifies borrowers at the start of the loan restructuring process the following:
(a) the policy and procedures regarding borrower objections related to loan restructuring, (b) the dispute resolution procedure, and (c) the operation of the Dispute Resolution Committee.

PART IV – TRANSITIONAL AND OTHER PROVISIONS
Repeal of Directive
Official Gazette, Part III
(I): 9.9.2013
14.2.2014
(G.D.P. 315/2013
G.D.P. 57/2014) and entry into force.
8. (1) The Arrears Management Directives of 2013 and 2014 are repealed except for the provisions of paragraphs 5(2)(b) to 5(2)(d), 5(3), and 8(2) of Annex 2 thereof, which continue to apply until the end of May 2015.
(2) This Directive enters into force from the date of its publication in the Official Gazette of the Republic, except for the provisions of paragraph 22(3)(h) of Annex 1 and paragraphs 5(2)(b) to 5(2)(e), 8(1)(b), 8(1)(c), and 8(2) of Annex 2 thereof, which enter into force from June 1, 2015.

ANNEX 1
FRAMEWORK FOR THE MANAGEMENT OF ARREARS
PART I – GENERAL PROVISIONS
Short Title and Scope.

(a) This Framework shall be known as the “Framework for the Management of Arrears” (hereinafter the “Framework”).
(b) The Central Bank of Cyprus (CBC) requires CIs to implement efficient and effective structures, procedures, and tools to support the management of arrears and the implementation of fair, adequate, and viable loan restructurings, where possible. (c) The Framework provides for a uniform approach by CIs in the management of arrears. Its purpose is to provide the basic principles for a fair and rapid resolution in restructuring efforts for borrowers facing financial difficulties, for the entire banking sector in the Republic of Cyprus. (d) CIs must comply with the principles and requirements contained in this Framework. (e) The principles and requirements are not exhaustive and must be used only as a reference point for determining minimum requirements. Each CI must also assess the relevance and scope of application of each provision of the Framework in relation to its own specificities and based on the principle of proportionality. Interpretation. 2. For the purposes of this Framework, the terms and definitions of this Directive apply.

PART II – METHODOLOGY FOR THE MANAGEMENT OF ARREARS BY LICENSED CREDIT INSTITUTIONS
Arrears Management Methodology.
3. (1) CIs adopt the five basic pillars, mentioned below, in the management of arrears and in the handling of borrowers facing financial difficulties. These pillars are:
(a) adherence to the Code of Conduct for the Handling of Borrowers Facing Financial Difficulties who fall within the scope of this Code as provided for in Annex 2 (hereinafter the “Code”).
(b) the development of a robust arrears management strategy.
(c) the use of relevant, effective, and viable loan restructuring techniques and options.
(d) the establishment of a robust organizational and operational model for handling the increasing volume of arrears. and (e) the monitoring of arrears management performance against key targets and the taking of corrective measures when and as required. (2) In order to ensure that CIs have the ability and capacity to handle the increasing volume of arrears and that they adhere to the aforementioned five pillars, CIs must conduct an internal assessment of the current arrears management strategy as well as their policies and procedures, and compare them with the provisions listed in this Framework. Therefore, CIs must identify gaps, determine areas requiring improvement, including systems and infrastructure, and develop an action plan for implementing the necessary changes to comply with this Framework. The aforementioned assessment is subject to review by the CBC.

PART III – CODE OF CONDUCT FOR THE HANDLING OF BORROWERS FACING FINANCIAL DIFFICULTIES
Code of Conduct for the Handling of Borrowers
Facing
Financial
Difficulties.
4. (1) The Code aims to provide CIs with a common basis for handling eligible borrowers.
(2) The Code aims to support and facilitate substantive interaction between CIs and eligible borrowers, with the aim of achieving a fair and viable restructuring, where possible. For this purpose, the Code clearly describes, among other things, the obligations of CIs during the arrears management process. A clear distinction is also made between cooperative and non-cooperative borrowers, with the aim of achieving consensual and voluntary restructuring.

PART IV – ARREARS MANAGEMENT STRATEGY (AMS)
Arrears Management Strategy.
5. Each CI must develop a comprehensive arrears management strategy describing the handling of arrears for each main category of loans provided.
The strategy must include:
(a) A clear and defined approach for each of the main categories of loans of the CI.
(b) An operational plan covering the key elements of arrears management, including Classification, Policy, and Loan Restructuring Solutions, Organization and Capabilities, Procedures and Systems, as well as Measurements.
Key Elements of Strategy.
6. (1) Each CI must develop a comprehensive and thorough Arrears Management Strategy (hereinafter “AMS”) for the effective management of arrears and for handling borrowers facing financial difficulties in a systematic, organized, and professional manner, and submit it to the CBC for evaluation.
(2) The AMS must include the following key elements:
(a) to cover the following cases:

loans that may present arrears (pre-arrears),
loans in arrears,
loan restructurings.
(b) to be consistent with the general goals and strategy of the CI.
(c) to be specific, measurable, and achievable (i.e., proportional to the human resources and complexity of the CI’s operations).
(d) to be adapted to the specificities of each category of loans.
(e) to provide relevant, adequate, and viable restructuring solutions.
(f) to promote a fair, cooperative, and case-by-case approach in handling borrowers facing financial difficulties.
(g) to be clearly communicated to employees and other competent persons or bodies. and (h) to be flexible and subject to regular reassessment in order to adapt to changing economic conditions and trends in arrears.
Portfolio Segmentation.

(1) Portfolio segmentation is a key element of each AMS given that it allows CIs to adopt and adapt different restructuring solutions to different sectors of their loan portfolio. The ability of CIs to thoroughly classify and analyze their loan portfolio is a basic principle of the arrears management process. CIs must pay particular attention to developing appropriate systems for portfolio segmentation to ensure both the correct implementation and control of the AMS.
(2) At a minimum, CIs must:
(a) apply portfolio segmentation to each relevant portfolio and sub-portfolio.
(b) define the relevant portfolio sectors based on relevant characteristics (e.g., the purpose of the loan, the currency, the performance, the location of the collateral property, the borrower’s behavior regarding arrears, etc.). (c) analyze and evaluate the arrears, problematic sectors, and trends of each sector of the sub-portfolio. (d) distribute each sub-portfolio (e.g., loans to small and medium-sized enterprises) into distinct groups (e.g., cooperative and viable borrowers with arrears exceeding 30 days) as follows:
(i) Level of Arrears:

No arrears (0 days),
Early arrears (<30 days),
Arrears beyond 30 days (moderate to severe arrears),
Arrears beyond 60 days, and
Arrears beyond 90 days,
(ii) Main Risk Sectors:
very high,
high,
moderate, and
low,
(iii) Borrower Viability:
Cooperative and viable borrowers,
Cooperative but non-viable borrowers,
Non-cooperative borrowers,
(iv) Collectibility Ratio: use of credit rating data and internal behavior where possible, (e) to define for each group - (i) specific viability criteria (where possible), and (ii) the possible treatment required, (f) to define specific short-term, medium-term, and long-term restructuring options in accordance with the requirements of Part V below, for each sub-portfolio, separated into each group, (g) to conduct scenario/sensitivity analysis and calculate possible developments in portfolios (including sub-portfolios and groups) as well as the relevant capital requirements, where required, (h) to monitor the development of each sub-portfolio and groups, based on predefined Key Performance Indicators (KPIs), according to Part VII below, (i) according to the results and development of sub-portfolios/groups, to review the strategy and approaches in a systematic manner and at regular intervals. Strategy Monitoring.

(1) The Risk Management Committee or another committee of the CI’s governing body must, at regular intervals, and at least on a semi-annual basis, evaluate the AMS and its key assumptions and premises, and submit the revised strategy to the CBC.
The evaluation should take into account any changes related to the environment in which the CI operates, including:
(a) internal factors (e.g., strategic changes, structural changes, portfolio development), and (b) external factors (e.g., market conditions).
(2) For adequate monitoring and revision of the AMS, the CI must:
(a) Define the process for measuring the effectiveness of the AMS.
(b) Prepare a list of relevant Key Success Factors (KSFs) for both performance and effectiveness, and conduct regular evaluation of KSFs to ensure correct implementation at all stages of the process.
(c) Define information requirements and formats.
(d) Define the frequency of AMS monitoring and the content of relevant reports. and (e) Define internal control mechanisms to ensure the CI’s compliance with the established AMS.
(3) The CI’s Internal Audit Unit prepares and submits to the CBC, on an annual basis, a report on the compliance of the AMS with this Framework.
Other Key Elements of the Arrears
Management Strategy.
(1) The other key elements of the AMS are described in Parts V to VII and include:
(a) Loan Restructuring Options,
(b) Procedures and Systems,
(c) Organization and Capabilities, and
(d) Measurements.

41(I) of 2017
149(I) of 2017
30(I) of 2019
77(I) of 2021
49(I) of 2023
119(I) of 2024.
(2) (i) A complete set of Loan Restructuring Options is essential for each CI to have the ability to provide relevant, appropriate, and viable solutions to borrowers facing financial difficulties. These options must provide a range of short-term, medium-term, and long-term solutions, taking into account the specificities of each borrower facing financial difficulties. (ii) Additionally, the CI must document the reasons why the possibility or possibilities of regulatory measures offered to the borrower, in accordance with Article 28 of the Law on Credit Agreements for Consumers Regarding Properties Intended for Residence, are appropriate based on the specific conditions of this borrower, and must create and maintain adequate records of contacts and communications with the borrower facing repayment difficulties, for at least six (6) years after the completion of the regulatory process with the borrower. (3) The establishment of appropriate Procedures and Systems ensures that the CI is able to handle existing and future cases of loans in arrears in its portfolio. (4) The continuous measurement by the CI of the performance and effectiveness of the arrears management process is necessary in order to evaluate the AMS and adjust it so as to meet the requirements of this Framework, with the ultimate aim of improving the institution’s loan portfolio.

PART V – LOAN RESTRUCTURING OPTIONS
Prevention. 10. To effectively address pre-arrears and early arrears, CIs must implement tools and mechanisms for the identification, communication, and management of borrowers at risk of facing financial difficulties. These include:
(a) Modeling exercises for the early identification of borrowers with financial difficulties.
(b) Guidelines for staff on how to handle pre-arrears and early arrears as well as the effective handling of borrowers facing financial difficulties. and (c) Information material for borrowers facing financial difficulties (e.g., a section on the CI’s website and informational brochures), with explanations regarding restructuring procedures. Determination of Options and Solutions.
11. (1) CIs must develop and implement an appropriate loan restructuring framework with the aim of providing viable borrowers with restructuring solutions that are appropriate and viable in the long-term horizon, and therefore strengthen the CI’s asset preservation processes. For this purpose, CIs ensure that the aforementioned restructuring framework:
(a) aligns with the AMS.

(β) provides for case-by-case assessment.
(γ) provides for the recommendation of a series of fair and viable restructuring options to borrowers.
(δ) focuses on the development and implementation of long-term restructuring solutions, but, where appropriate, may allow the combination of short-term, medium-term and/or long-term arrangements.
(ε) combines traditional and non-traditional restructuring solutions.
(στ) is adapted according to the category of loans (e.g., mortgage loans, consumer loans, SME loans, commercial real estate purchase loans, etc.) and the specifics of each sector (e.g., financing for real estate investment). and (ζ) may include real estate or/and movable property or/and other collateral sale programs, if and when indicated. The number of loan restructuring options that CIs may include within their framework to be taken into account during the restructuring process are referred to in Section III of this Framework.

(2) CIs must announce the loan restructuring framework, including measures, options, guidelines and decision-making tools to all relevant units and to all competent staff and ensure their adequate training.

(3) CIs must adapt the loan restructuring framework to incorporate any additional measures that the Central Bank may recommend during the assessment of options.

Restructuring Tools and Processes

Every CI must establish and apply the necessary tools and processes that facilitate the implementation of loan restructuring solutions. These include, but are not limited to:
(a) Decision trees, the design of which aims to assist those responsible for loan restructuring in categorizing borrowers, determining and applying appropriate and viable strategies for the specific borrower category in a consistent manner, based on predefined and approved criteria. (b) A defined list of restructuring options ("Restructuring Toolkit") approved by the CI and available for use. (c) A tracking system, designed to facilitate the identification and sectoral classification of borrowers and loans based on similar criteria and to allow the application of systemic strategies, where possible.

Arrears Management Policies
(including pricing policy regarding loan restructuring)

(1) CIs must ensure that the current loan and arrears management policies and procedures are updated so that the principles and requirements of this Framework are complied with.

(2) CIs must apply a fair and viable pricing policy regarding loan restructuring. This policy must aim to minimize costs, fees/charges and interest rates for borrowers undergoing loan restructuring. In case of restructuring, emphasis must be placed on the repayment of principal. The pricing policy in loan restructurings must provide for the following:
(a) the imposition of a reasonable and fair interest rate on restructured loans, taking into account the interest rates of the serviced loans.
(b) the careful assessment of the impact of the interest rate level on the borrower's repayment capacity during the restructuring process of any overdue loan.
(c) the imposition of the minimum possible charges, fees/charges and other expenses related to the entire loan restructuring process. and (d) the adaptation for each sub-portfolio/group.

(3) CIs must, at least on a semi-annual basis, review and revise their pricing policy where deemed necessary, and submit detailed information regarding this policy to the Central Bank.

PART VI – ORGANIZATIONAL STRUCTURE AND OPERATIONAL MODEL

Targeted Organization and Operation Standard

(1) CIs must clearly define the blueprint of the organizational structure, the level of resources and capabilities as well as the systems and processes required for the effective implementation and monitoring of ARM.

(2) CIs must implement an effective operational model that includes all systems, policies and procedures in order to support the effective and efficient management of borrowers' arrears with financial difficulties.

(3) The operational model:
(a) must be consistent with the CI's policy and strategic framework.
(b) may include a single integrated process so as to ensure efficiency and cost savings.
(c) must cover all relevant areas of the organization (e.g., workforce, operations, etc.) and (d) must focus on the results and effectiveness of arrears management activities.

(4) Regarding policies and procedures, the CI must, at least, define:
(a) The loan restructuring policy consistent with this Framework.
(b) internal governance and authorization structure regarding the restructuring of overdue loans and the specific areas of responsibility for handling borrowers facing financial difficulties.
(c) Definitions, including criteria and checks, where applicable, of the following:
(i) types of default events,
(ii) types of arrears, and
(iii) sustainability/resilience.
(d) guidelines for the assessment of overdue loans, including the calculation of reasonable living expenses during the assessment of the borrower's individual financial situation.
(e) guidelines for the handling of arrears and loan restructuring regarding multiple creditor cases (relevant information is found in Sections II and IV of this Framework).
(στ) early warning mechanisms and procedures for handling borrowers and operational processes per sub-portfolio/group.
(ζ) the form, content and speed of communication with borrowers facing financial difficulties (including pre-arrears).
(η) the information collection process (i.e., the type, frequency, validation and archiving of information).
(θ) the analysis and evaluation of data and information, both in physical and electronic form.
(i) guidelines for dealing with non-cooperative borrowers.
(ia) the types of alternative repayment means available.
(ib) tools and mechanisms to facilitate decision-making (e.g., decision trees).
(ic) guidelines to achieve a flexible approach regarding the handling of borrower complaints.
(id) measurement and monitoring mechanisms, including rewards and accountability, and reporting, including frequency and purposes.
(ie) policies for personnel involved in loan restructuring, including the training policy.

Organizational Structure and Human Resources

CIs must have an appropriate organizational framework for the prudent management of arrears and borrowers facing financial difficulties. The organizational framework must ensure the following:
(a) human resources are sufficient and appropriately trained, and (b) all duties and responsibilities are clearly defined and allocated to the CI's administrative body, management and other competent bodies as well as to personnel involved in arrears management, handling borrowers facing financial difficulties and restructuring problematic but viable cases.

Organizational Assessment and Resource Planning

CIs must conduct a thorough assessment of their internal capabilities regarding arrears management, loan restructuring, and expertise in various market sectors. The assessment should include, but is not limited to:
(a) Assessment and reassessment of the existing organizational structure and procedures regarding arrears management and handling borrowers facing financial difficulties.
(b) Resource measurement: Determination of existing available endogenous and exogenous resources, the level and specialty of personnel required for each function, assessment of the suitability of existing personnel, as well as in-house availability for internal redistribution. (c) Human resource assessment: Assessment of required knowledge and experience as well as existing staff efficiency. Identification of gaps in knowledge and experience as well as specific needs for staff improvement and any needs for additional staffing. (d) Human resource upgrading: Assessment of methods for upgrading the capabilities of existing human resources and a program for required training. This must also take into account:
(i) the level of experience and expertise required for each sub-portfolio/individual group, (ii) current and projected needs, and (iii) responsibilities and the required level of specialization.

Resource Planning

(1) Resource planning aims to determine the best, most effective and most efficient combination of resources required by the CI for the management of existing and future arrears, as well as for the handling of borrowers facing financial difficulties.

(2) CIs must calculate potential resource shortages and define a related plan with short-term, medium-term and long-term horizons, taking into account their strategic, operational and financial data (e.g., the projected evolution of the portfolio and the profile of arrears).

(3) Measures required to upgrade the existing organization and capabilities in relation to the identified needs. Measures may include:
(i) Internal planning to identify suitable and capable individuals within the organization.
(ii) Human resource assessment with high potential and implementation of programs providing incentives to avoid the turnover of such personnel.
(iii) Precise job description with review and modification of duties when and as required.
(iv) Human resource training planning to cover training and upgrading requirements.
(v) Outsourcing planning including the process of identifying third parties, for possible application of a schedule and assessment of existing human resources.
(vi) Management planning to ensure that current management is capable and holds the required qualifications.

Outsourcing
E.E. Part III(I):
15.10.2021
(D.E. 426/2021)
E.E. Part III(I):
7.7.2023
(D.E. 213/2023)
E.E. Part III(I):
29.12.2023
(D.E. 428/2023)
E.E. Part III(I):
29.11.2024
(D.E. 395/2024)
E.E. Part III(I):
7.4.2025
(D.E. 103/2025).

17A. In cases where the CI's activity is outsourced wholly or partially to third parties, CIs should ensure compliance with the requirements set out in the Credit Institutions Internal Governance Directive of 2021, as amended subsequently, regarding the outsourcing of activities, including the ultimate responsibility of CIs during the outsourcing of activities.

Arrears Management Unit

(1) CIs must have an independent, centralized Arrears Management Unit (AMU) with specialized functions regarding loan categories for (a) the effective monitoring of arrears and problematic cases and (b) the conduct of loan restructurings of borrowers facing financial difficulties, on a centralized basis. The AMU is separate from the Debt Recovery Unit, which usually handles loans of non-viable borrowers.

(2) The degree of centralization and the corresponding structure of the AMU is determined by the specifics of each CI, having due regard to the principle of proportionality.

(3) When establishing the AMU, CIs must:
(a) clearly describe the reasons and logic (i.e., from strategic, technical, operational and financial aspects) of the structure selected for the Unit.
(b) clearly define the referral criteria for the monitoring of problematic cases to the AMU.
(c) ensure that the AMU operates as an independent entity, separate from credit granting and customer relations functions. and (d) establish and communicate the approach that the AMU should adopt for each loan category (e.g., in cases where appropriate, the approach where a single officer handles the entire scope of restructuring ("cradle to grave approach") and in cases where appropriate the approach where various officers are assigned as responsible based on the severity of arrears ("assembly line approach")).

Independence of the Arrears Management Unit

(1) In order to ensure a fair and impartial approach in the management of arrears and the restructuring of loans of borrowers facing financial difficulties, CIs must ensure that the AMU operates as an independent body.

(2) Personnel employed in the AMU cannot have any relationship or involvement with granting functions that could affect their independence and should not have participated in the credit facility granting process. The level of cooperation between the two functions is limited to the transmission of relevant customer information from the granting/customer relations department to the AMU.

(3) If there are common resources between the AMU and the credit granting unit, then the CI must apply relevant procedures and mechanisms to maintain integrity and impartiality during the restructuring process.

Alignment of Policies, Procedures and Resources

(1) CIs must ensure that all policies, procedures and resources are aligned with current and projected strategic needs and objectives.

(2) For this purpose, CIs must:
(a) establish appropriate governance structures and control mechanisms for monitoring, identifying and correcting any inconsistencies in a timely and effective manner.
(b) assign duties and responsibilities and establish accountability procedures, measurable targets (i.e., Key Performance Indicators (KPIs)) as well as benchmarks for the assessment of the AMU and personnel, collectively but also on an individual basis. (c) clearly define and communicate standards, develop staff training and performance update programs and establish procedures for recognizing and rewarding successes.

Process Efficiency

(1) CIs must ensure the efficiency of processes for the management of arrears and the handling of borrowers facing financial difficulties by applying best policies, procedures and practices.

(2) These include:
(a) Lean thinking: CIs must ensure that they apply policies and procedures that allow the application of lean concepts and techniques in operational processes so as to minimize the required time and cost for both the CI and the borrowers during the restructuring process. Relevant examples are decision trees, standardized questionnaires, among others, for information collection, and predefined analytical models, such as cash flow sensitivity analysis. (b) Number of cases under management: The management of each CI is responsible for determining the ideal number of cases that each team and individually each responsible officer should handle. Management is also expected to define control criteria, establish automated processes for monitoring and reporting, where possible, and apply preventive and corrective measures (e.g., cessation of insignificant activities, grouping, resource redistribution, process automation) so as to avoid any disorganization in the process. (c) Exchange of views/knowledge for best practices: CIs must arrange for a mechanism for the exchange of views on best practices regarding arrears management and restructurings. Management must encourage knowledge exchange among personnel and update policies and procedures on a regular basis to ensure alignment with international best practices. (d) Culture of continuous improvement: Management must take necessary measures to facilitate improvements in the management of arrears and the restructurings of borrowers facing financial difficulties. CIs must set up mechanisms for the timely and effective application of corrective measures and improvements, when and as required (e.g., specialized training, modification of procedures, etc.).

(3) CIs must evaluate the efficiency of processes based on criteria related to their operations and the specifics of the portfolio. CIs must submit their policies, practices and procedures in the field of arrears management and loan restructuring to the Central Bank and must also demonstrate to the Central Bank that they apply them correctly and consistently.

Computerized Information Systems

CIs must develop a comprehensive database and Computerized Information Systems (CIS) for:
(a) the effective and efficient management of arrears, problematic loans and borrowers facing financial difficulties.
(b) conducting the required analysis in the loan portfolio to allow sectoral classification and performance evaluation.
(c) the integration of an early warning system to allow uniform identification of potentially problematic loans based on predefined indicators. and (d) facilitating the separation of the loan portfolio into loans that may be sold or secured when required.

(2) CIs evaluate their systems at regular intervals, and at least annually, in order to carry out timely and necessary improvements.

(3) CIs must ensure that the capabilities of CIS are sufficient to cover the defined needs and requirements. The systems must, at a minimum, allow CIs:
(a) to highlight warnings early.
(b) to assess the borrower's financial position and repayment capacity.
(c) to manage revenues and cash flows from collateral.
(d) to monitor the evolution of portfolios/sub-portfolios/groups.
(e) to measure performance and borrower compliance based on specific targets and predefined criteria.
(στ) to identify, prevent and monitor problematic cases.
(ζ) to evaluate restructuring scenarios.

(η) to conduct, at a minimum, for cases of borrowers with total loan balances exceeding three hundred thousand euros (€300,000) (including loans of connected persons), calculations (i) of net present value and (ii) of the impact on the CI's capital position for each borrower and per restructuring option and/or per any possible restructuring plan under relevant legislation (e.g., legislation on disposals, insolvency legislation, etc.). (θ) to prepare automated reports regarding loan performance for senior management and the administrative body. and (i) to submit reports to the Central Bank.

Information Quality

CIs must apply relevant procedures and controls to evaluate and report on the completeness and accuracy of data and information received. For this purpose, CIs must:
(a) define priorities and criteria for data collection and maintenance.
(b) establish mechanisms, based on the principle of proportionality, preferably automated, for periodic checking of details, report preparation and monitoring of covenants and compliance.
(c) apply quality control mechanisms to ensure the completeness, accuracy and consistency of details and information between internal systems.

Data Retention Policy

(1) CIs must implement a data retention policy that sets the storage, retention and accessibility requirements for all supporting documents and legal documents regarding arrears management and loan restructuring, including communication with borrowers.

(2) The data retention policy must provide that the archiving and maintenance of data files for problematic cases is strict, in order to ensure that all parties involved in the restructuring are able, in an easy manner, to retrieve and examine documents and information regarding restructuring procedures and decisions.

Process Effectiveness

CIs must ensure that the arrears management process is effective, and that the results derived from this activity are viable, especially regarding the level of re-defaults of restructured loans, which must be kept to a minimum. CIs must also monitor the robustness of cure rates of successful restructurings, in order, among other things, to apply necessary corrective measures in a timely manner aimed at minimizing re-default situations, particularly in areas where the CI has the ability to control (e.g., appropriate assessment of each case).

Monitoring of the organization and operations.

(1) APIs must establish a policy and procedure for the regular assessment of the API's internal capabilities, including necessary information.
(2) To conduct appropriate measurements, APIs must define specific Key Success Factors (KSFs) (e.g., number of restructured/non-restructured cases, quality of restructuring measures implemented, level of re-arrears, etc.).
(3) APIs must assess the availability, suitability, and effectiveness of resources at least on a semi-annual basis under normal economic conditions and at least on an annual basis under a stressed economic scenario.
(4) APIs must conduct an annual assessment of the effectiveness of the procedures and systems used for managing arrears and restructurings, including regarding compliance, quality assurance, and full risk assessment.

Operations. 27. APIs must implement appropriate safeguarding measures to ensure that all tools and procedures operate efficiently and effectively, and that the solutions proposed to borrowers presenting arrears and/or facing financial difficulties are viable. Such measures include:
(a) regular loan portfolio or sector sampling checks to assess case management quality, with the aim of integrating best practices.
(b) quality assurance exercises to ensure that all quality and compliance requirements are met. Quality assurance reports must be submitted to Senior Management at least on a monthly basis.
(c) establishment and communication of Key Performance Indicators (KPIs) to measure process efficiency (e.g., level and speed of communication, quality of information received, approved business plans, amounts of arrears cases, time for restructuring, etc.). (d) establishment and communication of KPIs to measure process effectiveness (e.g., collectability, restructuring completion, taking additional collateral, etc.). (e) automated monitoring of processes and KPIs via MIS. (f) implementation of manual reporting mechanisms for data that cannot be subject to automated monitoring, to avoid omissions. (g) full risk assessment of all cases on the monitoring list on a quarterly basis, with information available to the CCB when and if requested. (h) definition of criteria for other risk assessments (e.g., key risk areas, high/medium risk borrowers, scope and frequency). (i) specific focus on the analysis of unfulfilled promises and rescheduling cases to identify causes and possible remedies.

PART VII – MEASUREMENTS

Monitoring of credit risk.
28. APIs must implement internal systems and procedures consistent with the Guidelines and Circular Letters of the CCB for the effective identification and monitoring of credit risk and the assessment of arrears management performance. The risk management department/unit of the API is designated as the competent body for monitoring and measuring the effectiveness and efficiency of arrears management (via e.g., KPIs).

Performance measurements.
29. APIs must separate the DCR into specific performance measurements (e.g., KPIs) and implement relevant scorecards and systems to ensure effective control, monitoring, and reporting.

Outcome measurements.
30. APIs must implement procedures and systems for measuring activities and results (e.g., amounts collected, restructurings without arrears after 'x' months, cure rates, etc.).

Cash collection effectiveness.
31. APIs must implement procedures and systems that allow for the accurate measurement of effectiveness regarding cash collection.

Internal control.
32. APIs must define the mechanisms and procedures concerning credit review and internal audit. Credit review and internal audit reports must be made available to the CCB when requested.

Examination of restructured cases.
33. (1) For loan cases that have undergone restructuring, APIs must conduct a review at least on a semi-annual basis to ensure that all terms are met, milestones are achieved, and no significant deviations from the borrower's projected financial conditions occur.
(2) APIs must establish effective procedures and mechanisms to enable early reaction in case restructuring terms are not met and/or milestones are not achieved and/or the borrower's financial situation has changed significantly. APIs must separate procedures, including the taking of legal and other measures, to be taken in cases where sustainable viability cannot be achieved or the borrower is no longer cooperative.

PART VIII – DISPUTE RESOLUTION PROCEDURE

Dispute resolution procedure.
34. (1) APIs must establish an independent internal appeals process and submit a detailed implementation plan to the CCB.
(2) In developing the aforementioned dispute resolution process, APIs must ensure that:
(a) the dispute resolution process is consistent with the provisions of the Code.
(b) the Dispute Resolution Committee, once established, must consist of members who are independent from the credit, monitoring, and restructuring management services, and whose chair is a senior executive of the API, to handle borrower appeals regarding restructuring impartially and without any conflict of interest. (c) The handling of appeals by the Dispute Resolution Committee must, for each case, include (i) examination of compliance with the provisions of the Code and (ii) in case of rejection of the proposed restructuring solution by the borrower, investigation into whether the offered solution was appropriate and compatible with the borrower's case, otherwise recommending that the API reconsider the formulation of another restructuring proposal or, in case of the API's refusal for restructuring due to failure to find a viable restructuring solution, conducting a re-evaluation of the borrower and ensuring that indeed no restructuring solution exists. (d) the specific policies and procedures concerning appeals, the dispute resolution process for borrowers, and the operation of the Dispute Resolution Committee are published and communicated to borrowers at the start of the restructuring process. (e) all relevant information and documents are made available to borrowers so that they can submit applications or appeals. (f) all relevant information and documents are made available to the Dispute Resolution Committee so that it can conduct a sufficient assessment of the appeal and achieve a fair compromise between the API and the borrower. (g) all necessary control procedures for the effective monitoring of processes and decisions have been established. (h) adequate safeguarding mechanisms to ensure impartiality during the appeals process have been developed and implemented. (i) an archiving system has been implemented for the accurate identification and monitoring of requirements and appeals, including specifications for secure storage. (3) APIs must inform, at regular intervals and at least on an annual basis, the progress of the dispute resolution process to the CCB, including the submission of a summary report of the appeals examined and the corresponding decisions of the Dispute Resolution Committee.

Section I: ASSESSMENT OF REASONABLE LIVING STANDARD

APIs must, taking into account any relevant provisions of the applicable legislation, develop a policy that ensures fair treatment, suitability, and equality, and communicate it to all employees involved in the loan restructuring sector. For this purpose, APIs must apply guidelines for determining what constitutes a reasonable living standard and reasonable living expenses, and put them into force specifically during the assessment of borrowers' loan servicing capacity facing financial difficulties within the restructuring process. These guidelines must cover at least the following:
(a) the assessment of the financial situation must take into account prevailing economic, social, and legal circumstances.
(b) the restructuring approach must ensure respect and fair treatment towards borrowers as well as consistency among borrowers.
(c) when determining the reasonable living standard, every effort must be made to avoid excessive or unjustified luxury in lifestyle, but at the same time it must be such that it allows the borrower to have adequate housing and necessary equipment for living. (d) the restructuring must not lead to undue hardship, but identify the golden mean, which must be based on respect for the natural, psychological, and social needs of borrowers in difficult situations. (e) APIs must respect the legal rights of the individual. (f) the assessment must take into account the need for individuals to maintain active participation in society. (g) the assessment of the financial situation must take into account the individual situation of the borrower, including household composition (e.g., number of adults, number of dependents), the substantial need for a car, variable costs faced (e.g., payments for childcare, children's education), and any special needs (e.g., medical needs, physical disabilities), as well as any special expenses for the individual case. (h) the guidelines must be fully transparent and contribute to initiating discussion with borrowers.

Section II: APPROACH TO MULTIPLE CREDITOR CASES

Borrowers may have various debts to multiple creditors, which may take various forms and may include, among others, other APIs and other categories of creditors (e.g., commercial creditors, employees, tax authorities, etc.), which may be secured or unsecured. Such multiplicity of creditors may lead to complexity in finding a viable restructuring solution for the borrower's loans. Creditors, if they are APIs, must cooperate and act transparently during the loan restructuring process, taking due account of the following:
(a) when creditors act independently and exclusively for their own interest, the borrower's difficulties may be exacerbated and lead to further problems in servicing their loans.
(b) in order to avoid multiple impacts on all creditors from bankruptcy, the interests of both secured and unsecured creditors must be taken into account to enable the development of a viable restructuring solution.
(c) cooperation among a wider group of creditors is beneficial if it provides for burden-sharing arrangements and minimizes total cost.
APIs are encouraged to include international best practices for such cases in their policies, such as the "Eight Principles" approved by INSOL International in 2000, regarding arrangements with multiple creditors. These principles are described briefly below:
First Principle: When the borrower faces financial difficulties, all involved creditors should be willing to cooperate with each other to provide sufficient (but limited) time ("standstill period") to gather and evaluate information about the borrower, as well as to prepare and evaluate proposals for resolving the borrower's financial difficulties, unless this is inappropriate in a specific case. Second Principle: During the standstill period, all involved creditors should agree to refrain from taking any measures to enforce their claims or (except for the disposal of the debt to a third party) reduce their exposure to the borrower, but they have the right to expect that during the standstill period, their position relative to other creditors will not be adversely affected. Third Principle: During the standstill period, the borrower should not take any action that could negatively affect the expected performance of the involved creditors (either collectively or individually) compared to the situation at the start of the standstill period. Fourth Principle: The interests of involved creditors are best served when their response to the borrower is coordinated. This coordination can be facilitated when one or more representative coordinating committees are established and when professional consultants are appointed to provide advice and support to these committees and, where appropriate, to the involved creditors participating in the overall process. Fifth Principle: During the standstill period, creditors should invite the borrower to provide and allow involved creditors or/and their professional consultants reasonable and timely access to all relevant information concerning its assets and liabilities, business, and prospects, so that a proper assessment of its financial position and the development of viable proposals for all participating creditors is possible. Sixth Principle: Proposals for resolving the borrower's financial difficulties and, to the extent possible, arrangements among involved creditors regarding any standstill period, should reflect the applicable legislation and the positions of involved creditors at the start of the standstill period. Seventh Principle: Information obtained for the purposes of the restructuring process concerning the borrower's assets and liabilities and business, as well as any proposals for resolving difficulties, should be made available to all involved creditors and should, unless already publicly available, be managed as confidential. Eighth Principle: If additional financing has been granted during the standstill period or under any proposals for rescue or restructuring, then the repayment of such additional financing should, to the extent possible, be given priority compared to other debts or claims of involved creditors.

Section III: LOAN RESTRUCTURING OPTIONS

Out-of-court loan restructuring
Out-of-court loan restructuring involves the change of the composition and/or structure of the borrower's assets and liabilities facing financial difficulties, without resorting to judicial intervention, and with the aim of promoting efficiency, restoring growth, and minimizing costs associated with the borrower's financial difficulties. Restructuring activities may include measures such as the restructuring of the borrower's business (operational restructuring) and/or the restructuring of the borrower's finances (financial restructuring). The borrower and the API can protect their respective interests more effectively if a contractual arrangement for loan restructuring is implemented. APIs must identify the reasons for the borrower's financial difficulties, conduct the financial assessment, and develop appropriate restructuring options that may be short-term, medium-term, or long-term horizon or any combination thereof. In developing restructuring options for each borrower, the API must take into account (a) macroeconomic forecasts and (b) the potential negative economic impacts on the API from any failure to find at least one restructuring option and, therefore, the initiation of proceedings under the applicable relevant legislation (e.g., enforcement legislation, insolvency legal framework, etc.). Some of the options in the content of loan restructurings are included under the titles "temporary solutions" and "permanent solutions". APIs and borrowers may take legal and/or other advice regarding any loan restructuring solutions.

Temporary solutions
Temporary solutions are defined as restructuring solutions with a repayment duration of less than two years. In cases of commercial real estate construction or project finance, the duration of temporary solutions cannot exceed one year. Temporary solutions should be granted only in cases where the borrower faces a temporary liquidity problem or where a long-term viable solution cannot be found based on macroeconomic forecasts due to temporary general or specific economic uncertainty. The contract for such restructurings should provide for annual review by the API to enable the adjustment of contractual terms according to unforeseen changes in the economic environment and/or the borrower's financial situation. APIs may incorporate the following options into their temporary restructuring solutions:
I. Interest only: During a specified short-term period, only the interest on the loans is paid and no principal repayment is made. The loan principal therefore remains unchanged and at the end of the interest repayment period, a new repayment schedule is determined based on the projected, in the best possible way, repayment capacity.
II. Reduced payments: The amount of repayment installments is reduced for a specified short-term period, to adjust to the borrower's new cash flow situation, and subsequently repayments continue, based on the projected, in the best possible way, repayment capacity. This option can be combined with other options to offset the temporary lower installments, e.g., extension of duration, higher single payment (balloon payment). Reduced repayment installments may be:

Higher than interest: Each installment covers the full payment of accrued interest for the period as well as an amount allocated for the repayment of the initial principal.
Lower than interest: The installment is lower than the accrued interest for the period, therefore a part of the interest owed but not paid is capitalized on the initial principal amount (usually added to the principal balance for future payment). This option can only be used in specific/special cases, such as during periods of unemployment, periods of significantly reduced income, or during business restructuring periods.
III. Capitalization of arrears and/or interest: The capitalization of arrears and/or accrued overdue interest, for the purpose of mitigating overdue debts and adding unpaid interest to the initial principal balance for future repayment with a revised schedule. This arrangement is used in cases of insufficient cash flows to cover arrears and/or interest while the projected cash flow is considered sufficient for the repayment of the capitalized balance during the remaining extended duration of the loan.
IV. Grace period: An agreement that allows the borrower a specified delay in fulfilling repayment obligations, usually in relation to the initial principal. This gives the borrower the ability to address a temporary difficulty or problem. Also, this arrangement can be used during the restructuring process period.
V. Reduction of interest rate: Permanent or temporary reduction of the interest rate (fixed or floating) on a loan to a fair and feasible interest rate. Loans with high interest rates are one of the common causes of financial difficulty. This may arise partially from the fact that interest rates are excessively high relative to the borrower's income or from the fact that the evolution of interest rates, contrary to a fixed interest rate, resulted in the borrower receiving financing at excessive cost, relative to prevailing market conditions.
APIs must recognize that a high interest rate can cause serious financial difficulty and it may be in their interest to reduce interest rates rather than risk the total default of their loans. Therefore, a reasonable and fair interest rate must be imposed on restructured loans, taking into account the level of interest rates on performing loans.

Permanent solutions
Permanent solutions are defined as restructuring solutions with a repayment duration of two years and above. For commercial real estate construction or project finance, the duration corresponds to more than one year.
The contract for such restructurings must provide for revision, at least, on an annual basis.
The following are the main permanent solutions that APIs may use in out-of-court restructurings:

I. Extension of Term: Extension of the loan repayment term (i.e., the date of the last contractual installment payment), which allows for the reduction of installment amounts by extending repayments over a longer period. In cases of loans to individual borrowers, the extension period cannot exceed the retirement age or 70 years as the maximum age limit, based on an assessment conducted on a case-by-case basis by the Credit Institution (CI). The extension of the loan maturity date beyond the age of 70 years may be granted only in remote, exceptional cases where there is credible evidence of a specific repayment source at a specific time.

II. Absorption of Cash Surplus: Aims to ensure cash flows for which there are no encumbrances and/or which are not reserved by the CI. A cash surplus may be achieved, for example, from higher cash inflows from operations, as well as from the sale of collateral or from unencumbered assets.

III. Additional Security: When additional encumbrances on unencumbered assets are taken as additional security by the borrower, in order to offset the higher relative risk and as part of the restructuring process. This generally aims to improve or cure the contractual loan-to-value (LTV) ratio. Additional security may take many forms, such as a pledge on a deposit, assignment of receivables, new/additional mortgage on real estate.

IV. Sale with Agreement/Assisted Sale: The CI and the borrower may agree on the voluntary disposal of the encumbered asset(s) for partial or full repayment of the facility. The CI restructures any remaining facility with an appropriate repayment schedule according to the borrower's revised repayment capacity.

V. Splitting of Mortgaged Loan: When a CI agrees to split a borrower's non-viable mortgage loan into:
(a) a viable mortgage loan, which the borrower repays, based on estimated repayment capacity, and (b) the remainder of the loan, which is transferred to a later repayment date.
For example, the loan is split into two parts (tranches), with the first part adjusted to the correct size for the borrower's estimated current service capacity and the second part "warehoused" by the bank, usually at the base rate. The second part is payable in the future when the borrower's repayment capacity improves or from the proceeds of the sale of mortgaged or other assets.

VI. Reduction of Mortgaged Borrowing by Replacing the Property with a Lower-Value One: The existence of a mechanism that allows a borrower with financial difficulties who has mortgaged their primary residence or business premises to move to a lower-value property. Any shortfall in the repayment of the existing loan from the proceeds of such a sale is transferred as "negative equity" into a new mortgage loan for the purchase of a new, less expensive property, i.e., a property with a lower purchase price than the total proceeds of the sale. The option under consideration should be evaluated by comparing the current value of the property against the loan balance and based on the borrower's revised repayment capacity. This option has the benefit of reducing the facility balance into more affordable payments for the borrower.

VII. Reduction of Interest Rate: Reduction of the interest rate (fixed or floating) to a fair and feasible rate. Facilities with high interest rates are one of the common causes of financial distress. This may arise partly from the fact that interest rates are excessively high relative to the borrower's income or from the fact that the evolution of interest rates, unlike a fixed rate, resulted in the borrower receiving financing at excessive cost relative to prevailing market conditions.

CIs must recognize that a high interest rate can cause severe financial distress and it may be in their interest to reduce interest rates rather than risk the total default of their loans. Therefore, a reasonable and fair interest rate must be imposed on restructured facilities, taking into account the level of interest rates on the serviced facilities.

VIII. Demonstration of Tolerance for Penalties in Loan Contracts: Temporary or permanent waiver of penalties for breaches of contractual terms.

IX. Modification of Contractual Terms: The contractual terms of a loan may be unnecessarily restrictive and impose a significant burden on the borrower. The CI may consider releasing the borrower from these terms while simultaneously monitoring the borrower's activities and financial strength adequately.

X. Reprogramming of Payments: The existing contractual repayment schedule is adjusted to a new viable repayment schedule according to a realistic estimate of the borrower's current and projected cash flows:

Partial Repayment: When repayment of facilities is made, e.g., from the sale of assets, which is lower than the amount owed. This solution is applied to significantly reduce the risk exposure and to allow the implementation of a viable repayment program for the remaining amount owed.
Lump-sum payment (balloon or bullet payments): When the reprogrammed repayment includes payment of a large part of the loan principal balance at maturity or at a later maturity, extending the term to give the borrower more time. This option may be used only when the borrower can adequately demonstrate the future availability of cash flows to achieve the repayment of such a large part of the loan.

XI. Enhancement of Existing Securities: A restructuring solution may involve the commitment of additional securities, for example, to offset the reduction in interest rates or to balance the benefits the borrower receives from the restructuring.

XII. Extension: This option is one of the less radical changes regarding restructuring and involves modifying the maturity date. In designing such restructurings, among other things, the negative impact that any increase in interest rate will have on repayment capacity and, consequently, on the borrower's viability must be taken seriously into account. For example, the unpaid principal may be refinanced into a new loan, with similar terms, for a specified additional period.

XIII. New Facilities: The provision of new facilities may be vital for the restoration of a borrower facing financial difficulties. Therefore, new credit facilities may be granted in restructuring agreements, which may involve the provision of additional securities, or in cases of settlements between creditors, the introduction of terms to offset the additional risk undertaken by CIs providing new financing to borrowers with financial difficulties.

XIV. Conversion to the Currency in Which Facilities are Expressed: The goal should be the alignment of the debt currency with the currency of cash flows. CIs should fully explain the exchange rate risk to borrowers and also refer to currency conversion insurance.

XV. Debt/Equity Swaps: Usually applied in corporate restructurings, where part of the debt is converted into equity which is taken by the CI, so that the remaining debt is adjusted to the correct size based on the borrower's cash flows. The goal is to minimize the current burden on the borrower and allow the CI to collect its due from the repayment of the adjusted facility and the potential sale of its equity in the company. CIs must ensure the legality and clarity of the terms of such facilities/equity swap agreements, e.g., company call options, credit institutions' put options, the right to sell to third parties/preference rights, as well as compliance with the Law, especially regarding provisions on the acquisition of special participations, acquisitions to satisfy debts, and concentration risks. This solution should be used only in remote cases and only when all other restructuring efforts have been exhausted.

XVI. Consolidation of Facilities: This option provides for the consolidation of several exposures into one loan, or into a limited number of loans. This option is particularly beneficial for cases where the consolidation of securities and secured cash flows provides greater overall coverage for the total debt than each facility individually. For example, by minimizing cash leakage risk or by redistributing liquidity surplus among exposures.

XVII. Partial or Total Debt Forgiveness: This option provides for the cancellation of part or the total amount of facilities remaining unpaid by the borrower. This option may be applied as the last stage where the CI agrees to pay a reduced repayment as a final settlement, i.e., where the CI agrees to write off the entire remaining amount of the facility if the borrower repays a reduced amount of the principal balance within an agreed timeframe. CIs may apply the option of facility write-off (debt forgiveness) only as the last resort and in remote cases given that the possibility of forgiveness may lead to moral hazard. Knowing the possibility of facility write-off as a restructuring option may lead borrowers to undertake more risky projects and irresponsible behavior.

Part IV: EXPLANATORY EXAMPLE OF MULTIPLE FACILITY RESOLUTION 3
Borrower Status Handling
Source: Central Bank of Ireland, Framework for a Pilot Approach to the Co-Ordinated Resolution of Multiple Debts owed by a Distressed Borrower, Multiple Debts Resolution Waterfall model, 8 May 2013, p.6 No Yes No Does the borrower have the financial capacity to service its debt based on normal expense levels? Is the shortfall from financial weakness expected to be short-term? Will it have the financial capacity if restructuring is done on overdrafts and credit cards? Will it have the financial capacity if the term of the unsecured debt is extended? Will it have the financial capacity if the interest rate of the unsecured debt is reduced? Will it have the financial capacity if the interest rate of the mortgage loan is reduced? Disposal of mortgaged property and other securities. Full repayment of mortgage loans and other liabilities Application of agreed reduced payment on the mortgage loan for a specified duration Their repayment program to be based on new terms and interest rates Extension of term on unsecured debt Extension of term on mortgage loan and unsecured debt Extension of term and reduction of interest rates on unsecured debt Extension of term and reduction of interest rates on mortgage facilities Significant restructuring of mortgage loans Will it have the financial capacity if the term of the mortgage loan is extended? Will it have the financial capacity with significant restructuring of the mortgage loan?

ANNEX 2
CODE OF CONDUCT FOR THE HANDLING OF BORROWERS FACING FINANCIAL DIFFICULTIES
Part I

INTRODUCTION:
(1) Scope
(1) Subject to the provisions of paragraph (2) of this section, CIs must apply the provisions of the Code of Conduct for the Handling of Borrowers Facing Financial Difficulties (hereinafter the "Code") to the following persons:
(a) Natural persons who received facilities from the CI with a total facility balance (including facilities of related persons of these) up to one million euros (€1,000,000):
It is understood that this scope includes the guarantors of the borrower as well as third natural persons providing security for the benefit of the CI for the borrower.
(b) Micro and small enterprises as defined in the European Commission Recommendation of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises (2003/361/EC) that received facilities from the CI with a total facility balance (including facilities of related persons of these) up to one million euros (€1,000,000). (2) The following persons do not fall within the scope of the Code:
(a) persons for whom a winding-up application has been made by another creditor.
(b) persons for whom a receiver or administrator has been appointed by another creditor. and (c) persons for whom a dissolution order has been issued.
(2) Adequate Arrears Management
Effective management of arrears of viable borrowers facing financial difficulties (hereinafter "borrowers") is a key element of the CI's risk management, especially in a difficult environment. The goal of arrears management is to reduce credit risk and avoid further deterioration of the borrower's financial situation, with the ultimate goal of restoring, where possible, the borrower's ability to meet its credit obligations. In view of the above principle, CIs must effectively and adequately manage cases presenting arrears and pre-arrears and proceed with restructuring of borrowers' facilities, based on voluntary restructurings and settlements, based on market conditions, where feasible.

The Code aims to provide CIs with guidance on the approach they should follow so as to take the necessary measures to develop and implement viable restructuring measures according to the borrower's repayment capacity. The main goal is the servicing of facilities by borrowers, the fair treatment of borrowers by CIs, to minimize the level of repossessions, in order to achieve the social goal of borrowers remaining in their homes and the viability of businesses and, consequently, supporting the Cypriot economy as a whole.

OBJECTIVES:
The purpose of the Code is to strengthen the level of cooperation between CIs and borrowers in order to achieve the following:

a healthy portfolio for the CI.
to become serviced facilities by borrowers by achieving viable restructuring solutions.
the maintenance and development of businesses and the economy.
the preservation of assets. and
the minimization of repossessions and disposals.
The main objectives of the Code are:
to guide communication and transaction between CIs and borrowers towards achieving mutual understanding and cooperation.
to encourage cooperation between CIs and borrowers to make arrears management effective.
to define the obligations and responsibilities of CIs in managing arrears and during the restructuring process.
to ensure that CIs provide adequate information and full explanation to borrowers regarding their rights and obligations concerning arrears and restructuring. and
to facilitate the process of resolving difficulties faced by borrowers in fulfilling their contractual financial obligations through the application of satisfactory and viable restructuring solutions, where possible.

GENERAL PRINCIPLES:
CIs must comply with the following general obligations and responsibilities regarding the management of arrears and the restructuring of facilities. They must:
(a) fully comply with the general objectives described in point 2 above.
(b) apply these principles in combination with sound banking practices and in compliance with all relevant legislation and regulations of the Republic governing them.
(c) behave professionally, fairly, transparently and prudently towards borrowers.
(d) ensure that borrowers understand their rights and obligations and that they are also informed, regarding the rights and obligations of CIs, as derived from their contractual relationship (Part II provides guidance on this to CIs as well as a relevant list of borrower obligations and rights that must be clearly defined in the agreement). (e) provide complete and accurate information to the borrower regarding both the case and the general procedures followed by the CI. (f) respond in a proactive and timely manner to pre-arrears and arrears situations. (g) examine each case independently and determine solutions based on specific characteristics (case-by-case treatment). (h) avoid excessive pressure and act objectively in the best interest of the borrower. (i) apply appropriate measures to avoid bias or conflict of interest in negotiations with the borrower. (j) provide the borrower with true and accurate explanations regarding the scope of available solutions and their respective impacts. (k) communicate clearly and ensure that the message is adapted to the audience to which it is addressed. (l) ensure that the borrower understands and accepts all proposed terms and conditions. (m) respect the borrower's right to privacy. (n) strive for the development of viable solutions for the management of arrears. (o) inform the borrower of their rights and obligations when arrears occur. (p) accurately document all decisions and convey them clearly to borrowers. (q) apply all necessary operational and service tools, procedures and control mechanisms to ensure compliance with this Code. (r) impose only authorized costs on the borrower and, in any case, not greater than those resulting from the arrears and/or restructuring. (s) provide appropriate training to staff members for the effective management of arrears, pre-arrears and for the handling of borrowers facing financial difficulties. (t) ensure that all staff members are informed and comply with relevant policies and procedures. (u) ensure that any third party, hired consultants and service providers (outsourced services) duly respect the provisions of this Code. (v) act proactively and take all necessary measures for the effective and efficient handling of non-cooperative borrowers and non-viable facilities. (w) act proactively for each sector of the economy, where applicable, to resolve issues regarding sectoral arrears. and (x) handle complaints to address inappropriate behavior cases early and objectively.
GENERAL RESTRUCTURING APPROACH:
CIs must apply the following stages when handling borrowers presenting arrears as well as in cases of pre-arrears:
COMMUNICATION WITH THE BORROWER:
(1) General principles of communication with the borrower:
CIs must, at a minimum:
i. apply a standardized and uniform communication approach, based on established and updated policies and procedures.
ii. develop predefined messages that are relevant, clear, informative, and adapted for the audience to which they are addressed, depending on the stage of arrears.
iii. ensure that all communication with the borrower is conducted early and in a proactive manner.
iv. ensure that communication is conducted politely and in the appropriate manner.
v. behave towards the borrower with a spirit of cooperation and partnership, inviting them to discuss further by phone or in a private meeting.
vi. maintain the frequency of communication within reasonable limits, depending on the case, and not excessive, in accordance with the CI's approved policy.
vii. communicate with the borrower at reasonable hours and preferably during working hours, unless otherwise agreed.
viii. ensure compliance with the principles of confidentiality and the borrower's personal data.
ix. inform the borrower in writing of the appointment of any intermediaries or third parties representing the CI and inform them of the terms of their mandate.

Stage 6: Dispute Resolution Process
Stage 5: Presentation of restructuring solutions to the borrower Stage 4: Study of appropriate restructuring options Stage 3: Assessment of the borrower's financial situation Stage 2: Collection of financial and other information from the borrower Stage 1: Effective communication with the borrower

x. provide appropriate training to relevant officers to ensure that communication with borrowers is maintained at a high professional level.

xi. provide borrowers with specific communication points offering specialized information regarding loan restructuring.

xii. provide all relevant information to both the borrower and the staff, such as:

a special section on their website for loan restructuring, easily and directly accessible, providing all relevant information regarding the rights and obligations of borrowers as well as the procedures applied by the Credit Institution (CI) when arrears occur on loans, as well as for pre-arrears cases,
printed informational material, and
support for relevant initiatives of the financial sector aimed at informing the public on loan restructuring issues and the importance of taking preventive actions.

xiii. inform the borrower of their right to submit an objection to the Dispute Resolution Committee as well as the procedure for submitting the objection, and

xiv. inform the borrower of the mediation procedure, in accordance with the provisions of Part VIA of the Laws on the Establishment and Operation of the Single Out-of-Court Dispute Resolution Body for Financial Nature of 2010 and 2014, as amended or replaced from time to time, and for the alternative dispute resolution bodies competent for resolving disputes under the Law on Alternative Resolution of Consumer Disputes of 2017, as amended or replaced from time to time. The information is provided through printed informational material which must be available in all branches of the CI as well as posted on a special section on the website.

(2) Stages of communication:
The stages of communication with the borrower are as follows:

(a) Pre-arrears communication
Pre-arrears is defined as the situation where the CI foresees that there is a significant risk that the borrower will face financial difficulties and present short-to-medium term arrears (due to, for example, changes in employment conditions, reduction in salaries, problems in the economic sector in which they operate, etc.). The CIs may become aware of the situation either from the borrower themselves or as a result of their own assessment and checks.

Because actual arrears have not yet occurred, communication with the borrower at the pre-arrears stage must be of an advisory nature and focus on identifying relevant preventive measures. Communication must be by telephone or in a private meeting, as deemed appropriate.

Continuation of communication, via telephone or in a private meeting, should only occur if the borrower is receptive to help in order to respect the borrower's rights as well as for proper cooperation in the future. In the contrary case, the continuation of communication may be in written form.

(b) Communication due to the presence of initial arrears:
Initial arrears occur when the borrower has not made full repayment or has made partial repayment towards the loan, up to 30 days after the date of the contractual repayment schedule.

Communication with the borrower for initial arrears must be made by telephone, within the first 20 days, following similar principles as those in the pre-arrears stage, and must be discreet and of an advisory nature. The borrower may also be invited to a private meeting. It is important that communication is conducted immediately once arrears appear or any warning signs are observed.

When arrears reach 31 days and the borrower does not respond to any oral arrangement, the CI must notify, in writing, the borrower and any guarantors thereof, unless contractual obligations prevent the provision of certain information to guarantors.

Content of notification:
The content of such notification includes, at least, the following information:

information regarding the arrears, including the start date of the arrears and the payment deficit up to the specified date,
details of any possible fees, charges or/and fines/interest related to the arrears as stated in the CI's policy published on its website,
the obligations and debts of the borrower, as well as the possible consequences of the arrears (i.e., additional costs, the impact on the borrower's credit rating, updates regarding the arrears in the Central Credit Registry, the possibility of realization of collateral, etc.),
the importance of cooperation between the borrower and the CI and an invitation to arrange a meeting for re-evaluation of the borrower's financial situation and the possible restructuring of the borrower's loans,
full contact details of the relevant employee with whom the borrower may communicate,
the existence of printed informational material in all branches of the CI as well as the link on the CI's website posted regarding the mediation procedure based on the provisions of the Law on Alternative Resolution of Consumer Disputes of 2017, as amended or replaced from time to time, and of Part VIA of the Laws on the Establishment and Operation of the Single Out-of-Court Dispute Resolution Body for Financial Nature of 2010 and 2014, as amended or replaced from time to time, and
in the case of natural persons, a reference to the availability of the "Statement of Personal Financial Data" form of Part III of the Code at the CI's branches and a reference to the link on the CI's website where such form is posted, as well as information that with the valid completion and timely submission of the form to the CI, the assessment for restructuring purposes will be completed as soon as possible.

The written notification must be accompanied by a telephone call to confirm receipt of the notification and to remind the borrower of their obligations, to investigate regarding the expected payment, and to schedule a private meeting, if deemed necessary.

The CI must agree with the borrower on the next communication date for close monitoring of the situation.

(c) Communication due to the presence of medium-level arrears When arrears reach 60 days and no arrangement has been made or is in progress, the CI must send a new written notification to the borrower and their guarantors, which must state at least the following:

updated information on the arrears,
any applicable fees, charges and fines/interest, if relevant,
the borrower's legal obligations to comply with contractual obligations regarding their loans,
the CI's right to initiate legal proceedings in case of continued non-compliance,
an estimate of the borrower's possible costs regarding the aforementioned procedures,
the existence of printed informational material in all branches of the CI as well as the link on the CI's website posted regarding the mediation procedure based on the provisions of the Law on Alternative Resolution of Consumer Disputes of 2017, as amended or replaced from time to time, and of Part VIA of the Laws on the Establishment and Operation of the Single Out-of-Court Dispute Resolution Body for Financial Nature of 2010 and 2014, as amended or replaced from time to time, and
a call from the CI to the borrower to contact them within 30 days from the date of this letter, either to arrange the arrears on their loans or to submit the financial data and information within a reasonable and appropriate time period as defined in paragraph 6, in order for the CI to re-evaluate their financial situation and find, if possible, a viable restructuring solution, taking into account the specific conditions of the borrower.

(d) Communication due to serious arrears
(1) Subject to the provisions of point 5(2)(d)(2), when arrears reach 90 days or have exceeded 90 days on the effective date of this Directive and no arrangement has been made or is in progress, the CI must send a warning letter to the borrower and a copy to the guarantors, which includes, at least, the following:

all information and actions included in the written notification referred to in point 5(2)(c),
informing the borrower that if they do not act in accordance with this letter within 30 days from the date of this letter, they will be classified as non-cooperative, and
a description of the consequences of classifying the borrower as non-cooperative, including the possibility of initiating legal proceedings by the CI and the possibility that the borrower may no longer fall within the scope of the Code.

(2) "Non-cooperative borrower":
A borrower is defined as non-cooperative when - (a) any of the conditions (i) to (iv) apply:
(i) the borrower does not fully and honestly disclose to the CI relevant and significant information which would significantly affect the assessment of the borrower's repayment capacity, or (ii) the borrower does not provide the relevant information or/and documents requested by the CI for the assessment of their financial situation within the specified time frame, according to paragraph 6, or (iii) the duration of CI and borrower communication after the first notification of the same regarding the CI's decision for a proposed solution/proposed restructuring solutions exceeds 14 days, according to the provisions of paragraph 8(1)(c), due to their own fault, or (iv) 90 days have passed during which the borrower:

has not fully fulfilled their contractual repayments and has not proceeded to any arrangement, as provided in the Code, or
fails to respond to the new contractual repayment schedule, as provided by the restructuring solution agreed upon based on the Code,
and
does not communicate or does not respond to communications and notifications of the CI or the borrower does not cooperate with the CI to prepare a restructuring plan,
and
(b) a warning letter has been sent to the borrower according to the provisions of point 5(2)(d)(1) and the borrower has not carried out the actions within the time frame as defined in said letter.

(e) Communication due to classification of borrower as "non-cooperative" (1) The CIs notify, in writing, the non-cooperative borrower, whose loans continue to show arrears or exceedances over 90 days, and any guarantors thereof, of the following:
(i) that they have been classified as non-cooperative,

(ii) details regarding the schedule based on which the CI will start legal procedures, (iii) an estimate of the possible cost of such procedures, (iv) the expected impact on the borrower's credit rating, (v) the risk of seizure and realization by the CI of the collateral secured in favor of the CI by the borrower or/and their guarantors for the loans in arrears, (vi) that the borrower and their guarantors remain liable for any unpaid balance of the loans after the seizure and realization of the collateral, including any interest, charges and related sale expenses, (vii) any other information relevant to the specific case, and (viii) that the CI provides a last opportunity to the borrower to be reclassified as cooperative if they act appropriately within 14 days from the date of this letter.

(2) In case of non-response by the borrower to the written notification referred to in point 5(2)(e)(1), the CI may initiate legal proceedings.

FINANCIAL DATA:
(1) Required information for assessment of repayment capacity:
The CIs have the right and obligation to access sufficient, complete and accurate information on the borrower's financial data as well as their guarantors, if deemed or subsequently deemed during the assessment stage of the borrower according to paragraph 7(3) necessary for the purpose of ensuring the borrower's repayment capacity, in order to adequately assess their financial situation and develop appropriate loan restructuring solutions.

The CI must explain to the borrower and, where applicable, to their guarantors that the timely submission of fully and accurately completed financial data ensures the development of a restructuring solution consistent with their repayment capacity and, therefore, significantly reduces the risk of new arrears or/and exceedances.

The CIs must clearly inform the borrower of the necessary information and corresponding documents required. The information must include the following:

for borrowers who are natural persons, the "Statement of Personal Financial Data" ("SPFD"), which is included as Part III of this Code, fully completed and signed as well as a signed declaration to the CI for the completeness and correctness of the data in the SPFD.
for borrowers who are legal entities, the financial statements which were submitted for audit or review, or the management accounts, if the financial statements which were submitted for audit or review are not available.
any necessary, at the discretion of the CI, documents, for the purpose of confirming the financial and other data provided by the borrower. and
any additional required information for restructuring purposes:
It is understood that, for cases of borrowers whose repayment capacity of their loans under restructuring is based also on their guarantors according to paragraph 7(3), the CIs may request from said guarantors to submit corresponding information with those required from the borrowers in order to adequately assess the repayment capacity of the guarantors as well.

(2) Time frame for submission of financial and other information by the borrower and guarantor The CIs must give the borrower and, where applicable, their guarantors a fair and reasonable time frame for the submission of the relevant financial and other information, depending on the type of information required for the assessment of the financial situation of the borrower and the guarantors. The fair and reasonable time frame is defined as follows:

for relevant information from natural persons, within 14 days from the date of expiry of the deadline for action by the borrower according to the letter of point 5(2)(c) or 5(2)(d)(1) or 5(2)(e)(1), depending on the applicable case, and which time frame may be extended by up to 7 days if there is a significant reason for this, at the discretion of the CI. and
for relevant information from legal entities, within two (2) months if the financial statements which were submitted for audit or review will be provided, or within one (1) month if the management accounts will be provided from the date of expiry of the deadline for action by the borrower according to the letter of point 5(2)(c) or 5(2)(d)(1) or 5(2)(e)(1), depending on the applicable case, and which time frame may be extended by up to 21 days if there is a significant reason for this, at the discretion of the CI.

ASSESSMENT:
(1) Assessment of financial situation:
It is imperative that the CI adequately assesses the financial situation of the borrower and the guarantors, where applicable, in order to ensure the finding of appropriate restructuring options and the implementation of the most adequate and viable restructuring solutions.

The assessment for the purpose of restructuring the borrower's credit facilities must be based on the financial information submitted by the borrower, but must also be enhanced with additional data provided by the borrower during the assessment by the CI and concern, but are not limited to, the following:
i. the specific situation of the borrower.
ii. the financial strength of the borrower.
iii. the total amount and categories of the borrower's loans.

iv. the current repayment capacity of the borrower.
v. the projected and expected repayment capacity of the borrower. and
vi. the borrower's credit and repayment history, including their transactional behavior in the past.

The assessment must follow clear and transparent processes and procedures.

The CIs must make every reasonable effort to cooperate with the borrower throughout the assessment process in order to accurately determine the borrower's repayment capacity and, therefore, arrive at a satisfactory and viable solution which is acceptable to both parties.

The CIs must conduct their assessment, taking into account both historical data and realistic forecasts. For this purpose, the CIs must explain to the borrower the advantages and the necessity to remain cooperative and to provide in due time any further information necessary for the CI to assess and confirm the borrower's projected income and expenses as well as their assets.

In cases where the borrower has various categories of loans (e.g., loan to their business, mortgage loan, loan secured by commercial real estate, etc.), the CI must examine the case of separating the various loans, the components of collateral or/and the income flows. During the assessment, the CI must examine these categories of loans separately as well as in total, for the determination of the most appropriate restructuring solution.

(2) Assessment of Collateral:
Taking into account the importance of the value of collateral as an alternative source of repayment as well as the negative impacts on the value of collateral due to the economic environment, it is imperative that the CIs conduct a thorough assessment of the collateral.

In order to formulate appropriate and viable restructuring solutions, the CIs must conduct an independent professional valuation for the determination of the market value and the forced sale value of the real estate in cases where:
i. the real estate constitutes existing collateral and which will be sold in order to reduce the borrowing, or
ii. the CIs request the borrowers to consider the possibility of including unencumbered real estate as additional collateral, or
iii. the commitment by the credit institution of unencumbered real estate aims to convert unsecured loans into secured loans.

It is understood that the independent professional valuation may be conducted by a valuation service of the credit institution, provided that it is staffed by approved valuers and is independent from the loan approval process.

In case the borrower is called to pay the cost of the valuation, the CI must provide the borrower with the necessary proof of payment as well as a true copy of the valuation report.

(3) Assessment of Guarantees:
For cases where the borrower's repayment capacity is based also on the repayment capacity of their guarantors, the CIs must assess the repayment capacity of the guarantors and their willingness to cooperate as well as the guarantees provided on a similar basis to the assessment of the borrower's repayment capacity.

The CIs must encourage borrowers to take all necessary measures to facilitate communication and cooperation between the guarantor and the CI so as to avoid complications or/and delays in the process.

(4) Assessment of restructuring options:
The CIs must, after receiving all necessary information from the borrower, examine all available loan restructuring options in order to decide on the most appropriate options for the specific situation of the borrower. During the assessment of the various options against the borrower's financial situation, the CI may deem it necessary to communicate with the borrower, in order to receive more information which they deem necessary. The CIs must explain to borrowers that it is vital to achieve viable restructuring solutions for the mutual benefit of the CI and the borrower, and, therefore, they should submit all necessary information in due time and participate in a constructive exchange of information and ideas during the restructuring process.

The CIs must thoroughly document the assessment for the purpose, among others, of providing the borrower with all necessary explanations during the presentation of the restructuring solutions.

RESTRUCTURING SOLUTIONS:
(1)(a) General principles:
Credit Institutions (CIs) must propose viable restructuring solutions to borrowers facing financial difficulties. A solution is considered viable when it enables the borrower to repay their facilities according to the revised restructuring plan and, simultaneously, achieves a reduction in the outstanding balance of their facilities in the medium or long term.

CIs must consider the viability of the solution as the key factor in the entire process, particularly to avoid legal proceedings and the liquidation of collateral. To this end, CIs must ensure that the borrower provides the CI with all relevant financial information, including details of any facilities they have with other CIs.

In cases where there are multiple creditors, the creditors must cooperate with each other, regardless of the performance of the borrower's accounts or the registration of collateral with any specific CI. The ultimate goal is to reach viable restructuring solutions that are feasible based on the borrower's overall situation and the preservation of the position of all CIs.

CIs must clearly explain to the borrower that restructuring is voluntary and that the borrower's consent is necessary for any modification of the existing terms and conditions.

CIs must conduct the process to identify relevant restructuring options in a transparent manner and in close cooperation with the borrower.

CIs must provide the borrower with a range of available restructuring solutions, from the scope of options considered, as well as a documented explanation and the impact of each proposal. CIs must involve the borrower to the greatest possible extent in determining the most appropriate solution for the specific case.

CIs must be receptive to comments and requests from borrowers, and in the event that inadvertent errors were made in the evaluation by the CIs due to errors in facts or assumptions, the CIs must review their evaluation and present, again, a revised restructuring solution.

(b) Timeframe for completion of the evaluation process and first notification to the borrower:
(1) Subject to the provisions of paragraphs 8(1)(b)(2) and 8(3), for all borrowers covered by the scope of the Code, excluding those falling within the scope of the Alternative Dispute Resolution for Consumer Disputes Law as amended or replaced from time to time, who have exercised their right for alternative dispute resolution under that Law, or borrowers falling within the scope of Part VIA of the Establishment and Operation of the Single Out-of-Court Dispute Resolution Body for Financial Nature Laws of 2010 and 2014, as amended or replaced from time to time, who have exercised their right for mediation under that Law, the total time for completion of (i) the evaluation process according to paragraph 7 and (ii) the first oral notification to the borrower of the CI's decision on the proposed restructuring solution(s) or that no viable restructuring solution exists must not exceed:

for restructuring of facilities for natural persons, one (1) month from the date of receipt of all required information for restructuring purposes from the borrower and any guarantors according to paragraph 6; and
for restructuring of facilities for legal persons, two (2) months from the date of receipt of all required information for restructuring purposes from them and any guarantors according to paragraph 6.

(2) Subject to the provisions of paragraph 8(3), the total time for completion of (i) the evaluation process according to paragraph 7 and (ii) the first oral notification to the borrower regarding the CI's decision on the proposed restructuring solution(s) or that no viable restructuring solution exists may, in exceptional cases, be extended by up to 14 days if there is a significant reason that can be substantiated.

(c) Duration of CI and borrower communication:
Subject to the provisions of paragraph 8(3), for all borrowers, excluding those falling within the scope of the Alternative Dispute Resolution for Consumer Disputes Law as amended or replaced from time to time, who have exercised their right for alternative dispute resolution under that Law, or borrowers falling within the scope of Part VIA of the Establishment and Operation of the Single Out-of-Court Dispute Resolution Body for Financial Nature Laws of 2010 and 2014, as amended or replaced from time to time, who have exercised their right for mediation under that Law, the duration of communication between the CI and the borrower after the first notification to the borrower regarding the CI's decision on the proposed restructuring solution(s), for the purpose of achieving a mutually acceptable restructuring solution, must not exceed 14 days from the date of the first notification to the borrower regarding the decision.

(2) Notification of the decision:
(a) Positive decision:
The notification of a positive decision to the borrower by the CI must be carried out according to the following procedure:

After CI and borrower communication according to paragraph 8(1)(c), the CIs must notify the borrower and the guarantor, where applicable, of the final decision within 14 days, in a private meeting, where they hand over a "letter of offer" in person with the participation of the guarantor, where applicable, or the letter of offer is sent by mail where such a meeting is not feasible. In the letter of offer, the CIs must provide the borrower and the guarantor, where applicable, with a detailed and clear explanation of the decision and the exact terms and conditions under which the decision was approved. Specifically, the letter of offer must include:

(i) a clear explanation and justification of the decision and what the proposed restructuring solution includes; (ii) the new terms and conditions subject to approval; (iii) an analysis of all additional costs, if any, that the borrower must pay as a result of the proposed restructuring solution; (iv) the next steps for the borrower to officially accept the offer and legitimize the modifications to the current contract; and (v) the procedure to be followed in the event that the CI's proposal is rejected by the borrower, namely:
(α) to notify the CI in writing of the rejection within 21 days from the date of receipt of the letter of offer; and (β) that the CI must respond to the borrower in writing within 7 days from the date of receipt of the borrower's refusal:
(i) expressing willingness to convene them again to evaluate other options, if feasible, or (ii) explaining that this is not possible and specifying the consequences for the borrower if they refuse the proposal, and must at least explain that:
- they have the right to submit an appeal to the CI's Dispute Resolution Committee within one month from the date of receipt of the letter in paragraph (β) above, unless otherwise specified by other applicable legislation;
- the CI's right to recall accounts and initiate legal proceedings after the completion of the dispute resolution process and/or any other process under the applicable legislation; and
- the possible legal implications, e.g., estimation of additional legal costs that the borrower may incur, the CI's right to recover or liquidate the mortgaged property and any other collateral, etc.

(b) Negative decision:

CIs must avoid, to the greatest possible extent, taking legal measures and seek all possible out-of-court options with the borrower.

In the event that, after a thorough evaluation and diligent cooperation with the borrower, the CI reaches a negative decision (i.e., it is estimated that the borrower will not be able to comply with any of the restructuring options considered), the CI notifies the borrower of this decision within 14 days from the last day of communication with the borrower according to paragraph 8(1)(c), either in a private meeting or via letter, where a meeting cannot be arranged.

CIs must adequately document their negative decision, including the verification evidence of the evaluation that led to this decision, and officially and in writing transmit their negative decision to the borrower via letter (hereinafter "negative decision letter"), which must include, at a minimum, the following:

(i) a clear explanation and justification of the decision; (ii) their right to submit an appeal to the CI's Dispute Resolution Committee within one month from the date of receipt of the negative decision letter, unless otherwise specified by other applicable legislation; (iii) the CI's right to recall accounts and initiate legal proceedings after the completion of the dispute resolution process and/or any other process under the applicable legislation; and (iv) the possible legal implications, e.g., estimation of additional legal costs that the borrower may incur, the CI's right to recover or liquidate the mortgaged property and any other collateral, etc.

(3) Timeframe for completion of the mediation process:
For cases of restructuring of facilities for borrowers falling within the scope of the Alternative Dispute Resolution for Consumer Disputes Law as amended or replaced from time to time, who have exercised their right for alternative dispute resolution under that Law, or borrowers falling within the scope of Part VIA of the Establishment and Operation of the Single Out-of-Court Dispute Resolution Body for Financial Nature Laws of 2010 and 2014, as amended or replaced from time to time, who have exercised their right to submit an application to the Commissioner to appoint a mediator according to the provisions of Part VIA of that Law, the total time for completion of the process described in paragraph 10 of Article 14G of that Law is determined in this paragraph.

DISPUTE RESOLUTION PROCEDURE:

(1) General principles:
CIs must establish a Dispute Resolution Committee that has sufficient resources and whose members are independent of the lending, credit approval, credit control, and risk management functions, and whose chair is a senior executive of the CI, so as to handle all appeals regarding restructuring effectively, efficiently, promptly, and impartially.

The CI must define such processes and procedures regarding the submission of appeals, requests, and complaints so as to achieve immediate and easy access for all borrowers. Additionally, the method of submitting an appeal must be described clearly and transparently in a specific section of the CI's website.

(2) Written procedure for the CI's dispute resolution method:
CIs must clearly define the appeal procedure in their relevant policies and procedures and adequately notify all new and existing borrowers.

The content of the dispute resolution procedure to be notified to the borrower must include, at a minimum, the following:

the contact point at the CI that handles appeals, requests, and complaints;
clarification that only written applications are accepted;
standardized documents provided by the CI that can be used by the borrower;
where and how to submit the application, i.e., by mail, by email, in person, etc.; and
the names of the persons at the CI with whom the borrower can communicate until the Dispute Resolution Committee decides on the appeal.

The content of the dispute resolution procedure to be followed by the CI must include, at a minimum, the following:

detailed explanations of the examination process to be followed by the Dispute Resolution Committee;
the right of the Dispute Resolution Committee to invite the borrower who submitted the appeal to a private meeting as well as the obligation of said Committee to meet with the borrower if requested by the borrower;
the required documents for the purpose of the examination; and
the maximum time period for providing the borrower with the following:
(i) official notification of receipt of the appeal, which must not exceed 21 days from the date of receipt of the appeal; and (ii) official decision regarding the appeal, which must not exceed two (2) months from the date of receipt of the appeal.

DEMONSTRATION OF COMPLIANCE:

CIs must be able to demonstrate to the Central Bank of Cyprus (CBC) their full compliance with the provisions of this Code.

For this purpose, CIs must:
(1) ensure the accessibility, quality, and completeness of all relevant information; (2) maintain a complete file for the following:

all communications with borrowers regarding arrears and restructuring of facilities;
all information received from the borrower;
all actions taken during the restructuring process;
all evaluations conducted;
all official approvals granted; and
other relevant legal documents.
(3) Have a file with all relevant documents.
(4) Keep all files demonstrating their compliance with this Code for a minimum period of six (6) years and all borrower data for at least six (6) years after the termination of the relationship with the borrower.

Part II
TRANSPARENCY OF BORROWERS' AND GUARANTORS' OBLIGATIONS AND RIGHTS

CIs must provide borrowers with a document specifying the respective obligations and rights of borrowers and CIs, in which borrowers sign that they have received adequate and complete explanations. At a minimum, the said document must include the following regarding the obligations of borrowers:
i. to show respect for the requirements of the terms of the lending agreements;
ii. to fully cooperate with the CI in order to achieve a viable restructuring solution;
iii. to show integrity, honesty, and transparency and always act in good faith;
iv. to be proactive in their communication with CIs when they anticipate or face difficulties in fulfilling their obligations;
v. to provide, in a timely manner, complete, comprehensive, updated, and accurate financial data and information regarding their financial situation (e.g., income level and net worth), when and as required, including documented evidence of income, expenses, and other financial data;
vi. to disclose all relevant information, including details of their facilities with other credit institutions, in order to evaluate their overall financial situation and ultimately achieve a consensus agreement among all creditors and the borrower;
vii. to be cooperative in providing additional relevant supporting documents required by the CI;
viii. for natural persons, to prepare a signed Personal Financial Statement, according to Part III below;
ix. to act to resolve arrears and other defaults in due time;
x. to declare that they understand that the best solutions can be achieved with their full cooperation and partnership with the CI;
xi. to be receptive to restructuring proposals;
xii. to declare that they understand that non-compliance with the repayment program and the provision of unreliable information may cease cooperation and, possibly, lead to legal proceedings; and
xiii. not to take any action that could negatively affect the position of the CI and its collateral.
CIs must provide guarantors with a document specifying their rights and obligations, which, among other things, include the timely submission of financial information required by the CI and recognition of the obligations of guarantors, as defined in the Protection of a Certain Group of Guarantors Law of 2003, as amended or replaced from time to time.
CIs must:
(a) When proposing possible restructuring options:
(i) help the borrower understand the various possible options; (ii) give the borrower time to make their own assessment regarding the impact of each possible option, in order to make a reasoned proposal to the CI regarding the option they will develop; and (iii) inform the borrower of their right to seek advice from an independent professional to assist them in making a decision, if deemed necessary. (b) When proposing restructuring solutions:
(i) ensure, to the greatest extent possible, that the proposed solutions are viable and that the borrower will continue to be viable; (ii) discuss the proposed solutions and provide clarifications to the borrower, in order to help them make a decision based on complete information; and (iii) inform the borrower regarding their right to respond to the CI regarding which of the proposed solutions the borrower considers the most appropriate and viable, according to their financial situation, or if none of the proposed solutions are acceptable, to provide an alternative proposal to the CI.

Part III
PERSONAL FINANCIAL STATEMENT

See attached table on the immediately following page.

PERSONAL FINANCIAL STATEMENT (PFS) FOR NATURAL PERSONS

PART A: BORROWER / GUARANTOR DETAILS
NAME: SURNAME:
DATE OF BIRTH:
ID/Passport No.: NUMBER & AGE OF DEPENDENTS:
RESIDENTIAL ADDRESS: EMAIL ADDRESS:
POSTAL CODE: CITY: COUNTRY:
TEL: HOME: WORK: MOBILE: FAX:
PROFESSION / SPECIALIZATION: EMPLOYER: POSITION: YEARS OF SERVICE:
MARITAL STATUS: SPOUSE'S NAME:
ID/Passport No.: DATE OF BIRTH: PROFESSION:

PART B: HOUSEHOLD MONTHLY INCOME AND EXPENSES (IN EURO)
Income Details
Borrower /
Guarantor
Spouse
Household Expenses
Average
Monthly
Expenses*i
Potential
Savings
Gross Monthly Salary (before tax, social security, and any other deductions) Net Monthly Salary (after tax, social security, and other deductions) Total Monthly Social Benefits Maintenance Allowance Total Other Income (Pension, Grants) Monthly Income from Real Estate Monthly Income from other assets (e.g., dividends, interest from deposits, investments, etc.) Other income _____ Common Utility Expenses Property Tax and other Insurances Household Expenses Transportation Expenses Education Medical Expenses Social Expenses Other Real Estate Other TOTAL TOTAL Total Surplus / (Deficit):
Monthly Arrears owed excluding Credit Institutions, ,

PART C: CURRENT MONTHLY REPAYMENTS OF CREDIT FACILITIES (IN EURO) ii
Type of Credit Facility
Name of
Credit Institution
Monthly
Installments
Arrears /
Overdrafts
Account
Balance
Initial
Amount or
Limit
Date of
Issue
Remaining
Duration
Restructuring
(YES/NO)
Type of
Collateral & Amountiii
Mortgage Loan for Primary
Residence
(personal / joint)
Mortgage Loan for other real estate
(personal / joint)
Overdraft Limit*iv
Other
Car Loan
Consumer
Other
Other
Car Loan
Consumer
Other

I declare responsibly that the above information is correct as of today and undertake to inform you of any changes.
SIGNATURE
APPLICANT /
GUARANTOR
DATE / /
Other
Car Loan
Consumer
Other
Credit Cards
Renting / Leasing
TOTAL _____

PART D: ASSET DETAILS

REAL ESTATE (IN EURO)
Description of Property
Location
Share of
Ownership
Estimated
Valuev
Forced
Sale Valuevi
Date of
Estimation
Mortgage /
Encumbrance?
(YES/NO)
Amount of Mortgage
Name of
Credit Institution
MOVABLE ASSETS (IN EURO)
Type
Value / Estimated Value
Encumbered / Free
Credit Institution
(if encumbered)
Relevant Details
Deposits
Cars
Life Insurances
Shares
Other investments
TOTAL

Are you a guarantor for a third-party benefit? (if yes, fill in below): YES NO Personal guarantee for: Amount of guarantee:
Date:
/ /
Credit Institution:
Personal guarantee for: Amount of guarantee: Date:
/ /
Credit Institution:
Personal guarantee for: Amount of guarantee: Date:
/ /
Credit Institution:
Has a bankruptcy order or other court order regarding your financial obligations ever been issued against you? (if yes, provide information on a separate sheet) YES NO Do you have any relationship/connection with customers of our credit institution (whether natural or legal persons / organizations)? (if yes, provide information below) Name of connected customer(s):
Relationship:
YES NO

FOR USE BY THE CREDIT INSTITUTION

WITNESSES: _____________________ __________________________ DATE: / / NAME SIGNATURE _____________________ __________________________ DATE: / / NAME SIGNATURE

Financial Summary (For Professional Use Only)

Total Monthly Income
Minus: Total Monthly Expenses
Minus: Total Monthly Repayments of Credit Facilities Total Surplus / (Deficit) Calculated Total Monthly Savings Total Household Surplus / (Deficit) Based on Potential Reduced Monthly Expenses Ratio {Total Monthly Repayments of Credit Facilities to Net Monthly Income} (%) Ratio {Total Monthly Repayments of Credit Facilities to Net Monthly Income increasing by the Estimated Total Monthly Savings} (%) Total Balances of Credit Facilities (€) Total Market Value of Mortgaged/Encumbered Real Estate (€) Total Forced Sale Value of Mortgaged/Encumbered Real Estate (€) Total Market Value of Free Real Estate (€) Total Forced Sale Value of Free Real Estate (€) Total Forced Sale Value of All Real Estate (€) Total Forced Sale Value of All Real Estate to Total Balances of Credit Facilities (%)

i 'Average monthly expenses' is the total amount of the last three bills divided by the number of relevant months (e.g., average electricity cost is the total of the last three bills divided by six) or, if not applicable, a reasonable estimate of the amount must be made.

ii The licensed credit institution completes Part C itself, to the maximum extent possible.

iii The security amount for mortgages must be the lowest of the following three: (a) mortgage value, (b) forced sale value of the property, and (c) credit facility balance. The security amount for shares is the average market price of the shares. The security amount for cash is the amount of the locked deposit.

iv The monthly repayment for the overdraft limit must be at least equal to the accrued interest.

v If there is no estimate from a professional appraiser, the market value must be calculated or the purchase price recorded.

vi If there is no estimate from a professional appraiser, the forced sale value must be calculated as 70% of the market value or the purchase price.

Unofficial Consolidation of the Arrears Management Directives of 2015 to (No.2) of 2026

Lineage: In force