In response to Antonis Rouvas, the Interim Executive Director of the Hellenic Bank, inviting vulnerable borrowers to seek solutions for their loans, financial experts weigh in on the criteria that banks use to distinguish between strategic defaulters and genuinely vulnerable individuals. The issue is also stirring debates in the Cypriot Parliament, where legislation aimed at pausing foreclosures is being considered.

Banks argue that proposed legislative changes could inadvertently protect individuals intentionally avoiding repayment, commonly known as "strategic defaulters." Contrarily, some lawmakers insist that simplified procedures should be available for borrowers to challenge their debt amounts.

According to Rouvas, the bank's policies are already designed to provide flexibility for borrowers genuinely facing hardships. He clarifies that strategic defaulters aren't limited to those with substantial debts; they can also be regular employees who, despite stable income and deposits, fail to meet their repayment obligations. Conversely, those who were financially stable when they took out loans but now struggle due to adverse economic conditions are the ones the bank is committed to assisting.

A report by Brief revealed that the term "strategic defaulter" isn't limited to individuals with massive debts; it can also apply to those owing significantly smaller sums. Vulnerable borrowers, as defined by the banks, are individuals who now have reduced income, are facing challenges, or are retirees without any assets that could be sold to clear their debts.

In a striking example, a strategic defaulter could be someone with a housing loan of up to €350,000. Such an individual might maintain that high-risk loan with one bank while operating a problem-free business account in another. Moreover, their lifestyle—marked by the purchase of luxury cars, extravagant trips, and lavish social life—stands in stark contrast to their non-payment of mortgage installments, raising red flags for financial institutions.

Experts are warning that changes to the existing legal framework could significantly tighten the conditions under which loans are granted.

If legislative modifications do occur, banks may either refrain from issuing loans altogether or provide them under increasingly burdensome terms. Such stringent conditions would not only affect the banking system but also unfairly penalize borrowers who have good intentions.

In many European countries, for example, banks already require collateral worth up to 50% of the value of a mortgage loan (compared to 20-30% in Cyprus today). High-interest rates are also a standard practice to compensate for the risk banks assume when a borrower defaults on a loan.

If changes are made to the current foreclosure laws, resulting in a more lengthy and complicated foreclosure process with an average duration of 5-6 years, Cypriot banks would likely have to adopt even stricter lending conditions. Such changes could leave them with little alternative, as they say, impacting both the financial institutions and borrowers adversely.