CYPRUS Law and Practice Contributed by: Kyriacos Scordis, Anna Borovska and Constantinos Kazamias, Scordis, Papapetrou & Co LLC
outside the banking sector (eg, in June 2023 Central Bank of Cyprus (CBC) issued EUR220 million Fixed Rate Reset Perpetual Additional Tier 1 (AT1) Capital Securities, and a concurrent cash tender offer to hold- ers of its outstanding additional Tier 1 Capital secu- rities). In April 2024, CBC issued a green bond for EUR300 million attracting interest from over 120 insti- tutional investors. Hellenic Bank also has an ongo- ing EMTN (euro medium term note) programme and has issued senior preferred bonds in recent years. In September 2024, Hellenic raised EUR100 million in senior preferred notes under its EUR1.5 billion EMTN programme. The bond was oversubscribed 3.7 times, with the order book exceeding EUR370 million. The exposure to the high-yield market is likely to attract other large corporations keen to tap into it as a replacement to shareholder equity, bank or trade finance, which are the current financing tools used. 1.4 Alternative Credit Providers The search for financial channels outside the tradi- tional finance system in Cyprus is showing tendencies for growth, with particular emphasis on credit arrange- ments via retailers promoting own arrangements or those of particular suppliers of goods or services and limited leasing schemes. The provision of peer-to-peer financing or B2B is less straightforward, and the sector is restricted due to CBC regulations and guidance that restrict non-bank- ing or equivalent institution financing. 1.5 Banking and Finance Techniques The Cypriot banking crisis of 2013 and the subsequent reforms in the banking sector, aimed at addressing the challenges facing the banking system, have resulted in the banks being very cautious towards new lending. In addition, the CBC has restricted the use of B2B or peer-to-peer financing from being processed via the banking sector. Banks now tend to seek to not only over-collateralise their exposure but to seek increas- ing levels of comfort regarding the underlying repay- ment ability. This in turn has meant that the appli- cation approval rate has fallen and there has been an increase in turnaround times (and corresponding overheads). The management and sale of NPLs has
remained a topic of ongoing discussion in the market with some progress in respect of this. Whilst the measures are meant to reassure investors, this has not been reflected in stock exchange pricing trends, with banking stocks continuing to fall. Aside from this, as well as the increasing use of retail- sector financing, there has not been any other signifi- cant alteration in banking and finance techniques to date. 1.6 ESG/Sustainability-Linked Lending The emerging sector of environmental, social and gov- ernance (ESG) investments and interest in sustainable lending is a trending topic, albeit one that does not seem to be a primary driver for or element in invest- ments in Cyprus yet (even if all or some of the afore- said elements are part of a review of a prospective investment). Having said this, there is a build-up of momentum due to the EU Sustainable Finance Disclo- sure Regulation 2019/2088 (SFDR), which came into effect in 2021, and the EU Non-Financial Reporting Directive 2014/95/EU (NFRD) of 2018. The SFDR has imposed harmonised transparency and disclosure requirements on financial market par- ticipants and financial advisers and entails companies within that ambit contemplating how sustainability risks are merged into the investment decision-making process as well as how remunerations are aligned with a company’s sustainability matters. Therefore, the SFDR affects a majority of the financial services indus- try in Cyprus. The Cyprus Securities and Exchange Commission (CySEC) has confirmed that supervised entities need to fully comply with the SFDR disclosure obligations and with their ESG commitments, as they will be closely monitored. In addition, the NFRD requires companies to include non-financial statements in their annual reports, including information on environmental protection, social responsibility and treatment of employees, respect for human rights, anti-corruption and bribery, and diversity on company boards. The NFRD applies to public-interest companies with more than 500 employers in the EU.
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