CBC calls for swift credit to “avoid a credit crunch” due to COVID19

The Central Bank of Cyprus in a circular issued on Tuesday called on Cypriot banks to provide swift credit to companies, self-employed persons and natural persons affected by the coronavirus epidemic in a bid to avoid a “credit crunch.”

“The aim of the circular is to facilitate the provision of liquidity to the economy to cover operating needs through the utilisation of temporary monetary and supervisory relaxation measures decided by the ECB,” the CBC said, adding that the provision of new lending “is necessary, to limit the impact of the coronavirus on the economy.”

The circular issued to the banks, published today covers short-term loans and overdrafts with a length of up to one year for corporations, self-employed and natural persons who had no loans in arrears exceeding thirty days in December 2019.

Eligible borrowers are very small business, small and medium-sized enterprises and self employed persons which three months before their application had their turnover reduced by 25% compared with the respective period of 2019 or compared with the average turnover in 2019.

For large corporations, the eligibility criteria stipulate that they should prove that their turnover dropped by at least 50% in the last three months before their loan application compared with the respective period of 2019, or their average turnover for 2019.

Eligible natural persons are those whose income in the last three months before their application declined by at least 25% compared with the respective period of 2019.

The circular says such loans can be provided to cover current liquidity needs, working capital, inter alia including wages, rent, and liabilities to suppliers, excluding payment of other credit facilities with the same credit institution.

Furthermore, the circular notes the loan’s initial capital should not be more that double of a company’s or self-employed wagebill cost for 2019 or the last available year, or should not exceed the estimated wagebill cost for two years of operation if the self-employed or the company have been established after January 2019.

Also, the loan cannot exceed 25% of a company of a self-employed entity’s turnover for 2019.

A loan for natural persons cannot exceed 25% of their annual gross income for 2019, the circular adds.

The CBC notes that eligible borrowers should provide proof of their eligibility with a declaration signed by their auditor, while natural persons should provide proof of their wage or a statement signed by their employer or even a statement signed by themselves.

Applicants should also provide sufficient proof that taken into account the circumstances created by the coronavirus outbreak their income or their economic situation “provide satisfactory repayment capacity.”

“The aim is to provide direct credit facilities to eligible borrowers and to avoid a credit crunch in the market,” the CBC noted pointing out that banks should set up swift evaluation procedures and suggest that banks should not charge applicants with fees.

Source: Cyprus News Agency

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