It is about time to implement a rescue culture.

Opinions & Studies


What are your projections for the Cyprus economy in the near future?


In a reflexive reaction and due to governmental measures nonessential travel was cancelled, investments were put on a hold, credit has tighten, events were rescheduled and everyone seems to be escaping in a forced digital existance, with lower reach, fewer resources and in a stand by position. It looks like everyone is holding their breath, nation and world wide, waiting to see what will happen next, making small moves and not taking any risks. The effect of these doubts, hesitations and lack of decisions will be clearly understood in a few months from now, the soonest. But all these lead the entire economy to a stretching process and to a strong shake to our world based on consumerism.

The COVID-19 pandemic’s impact on capital markets, supply-chain disruption, tourism, hospitality and transportation became seismic. In the first quarter of 2020, economic growth slowed down considerably, 0.8% (year-on-year), reflecting a significant fall in external demand for goods and tourism. Economic expectations in services are at a historic low, despite a slight improvement in June.

Despite the internal and external pressure there were no pre-insolvency or insolvency reforms to accommodate the current situation. Since insolvency is always a last resort for both creditors and debtors in financial distress, the insolvency framework was not a major concern for authorities and legislators during this period. The question is whether our existing formal collective restructuring and insolvency proceedings are effective enough to deal with the cases which will come after the end of the temporary state aids.

Due to the decision of the Association of Cyprus Banks to extend the suspension period of foreclosure proceedings until August 31st, 2020, what we’ve noticed in this period is a change of behaviours for big creditors being more open to implement any solution and proposal a client in distress might bring, along with compromises and maybe even hair-cuts out of court or out of any proceeding.

In terms of NPLs however we expect small increase or no increase at all for 2020 due to loan installment suspension until 31/12/2020.


How would you describe the restart of the Cypriot market and the most important fields of the economy? How do you assess their gradual recovery?


The state was quick to take measures and draft an emergency liquidity program with a view to help companies and their economies survive the lockdown and the period that came immediately after. This freezing period may last up to end of the year when all postponments and state aid might come to an end as well. Given the increasing private and public debt we can assume that the measures to help the companies restart their activity will not be as generous.

In a healthy business environment, insolvency acts as a protection tool for all parties involved in the process: debtors, creditors, employees, shareholders. The more affected the economy of a country is, the more insolvency tools should be used, given that there is a proper regulation system in place to ensure their effectiveness.

Insolvency tools were successfully used to overcome financial crisis by other countries over the time, helping them to address problems, accommodate distress and restart their economies.

For instance, in 1990 Ireland introduced a rescue process to respond to a crisis in the Irish beef industry. This rescue process actually reflects all the key features in the recently adopted Directive on Preventive Restructurings. The Irish examinership shows the outcome of a rescue tool and how an insolvency tool can help a country overcome a financial crisis. This has proven successful for large companies and for smaller companies as well. Of course, over the past 30 years the Irish examinership has suffered a lot of changes. At the beginning it was suitable for large companies only, bringing high costs, a lot of court involvement and time but then in 2015 after a major reform this tool received a wider use and it became effective for smaller companies as well.

Important to mention that SMEs will be particularly hard hit by this crisis—and they represent approximately 90% of the private sector firms and seem to generate more than half of the jobs in all developing countries.

An index published in 2019 suggested that the process of examinership has saved 15,000 jobs since 2009. With an estimated 75% success rate as per 2018, companies in distress returned to normal trading after going through an examinership.

It is important to mention that examinership is a procedure regulated by the Cyprus law, however it was basically underused so far.

It appears now to be important to implement a rescue culture in all Member States, Cyprus included and implementing as soon as possible the European Directive on Preventive Restructuring comes as priority.

An effective regime of corporate insolvency in Cyprus will contribute to the improvement of the investment climate in the country, will facilitate the distinction between companies that are capable of rescue and those that are not.



However,  accurate projections cannot be made before the sanitary crisis is over.