EN ECB -PUBLIC  
OPINION OF THE EUROPEAN CENTRAL BANK  
of 11 June 2021  
on the role of the Central Bank of Cyprus  as regards  
the issuance of government guarantees to credit institutions  
(CON/ 2021/ 21) 
 
Introduction and legal basis  
On 11 May 2021 the European Central Bank (ECB) received a request from the Ministry of Finance of the 
Republic of Cyprus  for an opinion on (a) the Law on the issuance of g overnment guarantees towards credit 
institutions for the granting of loans to businesses and self -employed persons1 (hereinafter  the ‘Law’)  and 
(b) a draft Decree on the issuance of government guarantees towards credit institutions for the granting of 
loans to businesses and self -employed persons2 (hereinafter the ‘draft decree’).  
The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union (TFEU), as the Law contains  provisions which concern the Central Bank 
of Cyprus  (CBC ) and the tasks conferred on the EC B pursuant to Article 127(6) of the Treaty concerning 
policies relating to the prudential supervision of credit institutions . In accordance with the first sentence of 
Article  17.5 of the Rules of Procedure of the European Central Bank, the Governing Counci l has adopted 
this opinion.   
 
1. Purpose of the Law and the draft decree  
1.1 The Law empowers the Minister for Finance, following the approval of the Directorate- General for 
Competition of the European Commission and subject to any requirements imposed by the  European 
Commission, to grant g overnment guarantees up to a total of one billion euro to credit institutions for 
the purpose of granting new low -interest loans to businesses and /or self-employed persons3. These 
guarantees are granted for the purpose of  increas ing the liquidity in the economy  and must not be 
used to facilitate  the repayment or restructuring of any outstanding performing or non- performing 
facilities. Credit institutions must pass the benefit of the guarantees on to the businesses and/or  self-
employed persons receiving the  new loans. The potential borrowers  need to prove that they were 
not facing financial difficulties on 31 December 2019,  but that they face financial difficulties due to 
the impact of the COVID -19 pandemic  after that date. The explanatory note that accompanies the 
 
1  Ο περί της Έκδοσης Κυβερνητικών Εγγυήσεων προς Πιστωτικά Ιδρύματα για την Παραχώρηση Δανείων σε 
Επιχειρήσεις και Αυτοτελώς Εργαζομένους Νόμος του 2021 (Ν. 110( I)/2021).  
2  Το περί της Έκδοσης Κυβερνητικών Εγγυήσεων Προς Πιστωτικά Ιδρύματα για τη Παραχώρηση Δανείων σε 
Επιχειρήσεις και Αυτοτελώς Εργαζομένους Διάταγμα του 2021.  
3  The total amount of government guarantees provided for is made up of: EUR 300,000,000 for loans to self -employed 
persons and micro businesses; EUR 550,000,000 for loans to small and medium -sized businesses; and 
EUR  150,000,000 for loans to large businesses.   
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2 consultation request of the Ministry of Finance explains that the aim of the Law is to address the 
effects of the measures taken to contain the COVID -19 pandemic.  
1.2 The Law stipulates that the government guarantees must be granted by 31 December 2021,  for a 
minimum peri od of three months and a maximum period of six years. In addition, the government 
guarantees must cover any losses that may be incurred as a result of  loans granted,  up to a maximum 
of 70% of losses incurred by  the Government , with  the relevant credit institution retaining a minimum 
of 30% of losses . The potential borrowers  are required to provide secur ity for  the loans  by mortgaging 
any unmortgaged immovable property or other assets , unless no such property or assets are 
available,  in which case the loan granted is unsecured. The loans may be granted to potential 
borrowers  in order to cover liquidity needs, working capital and investments in Cyprus.  If a credit 
institution refuses a loan application, the applicant  has the right to file a complaint with the  Monitoring 
Committee mentioned in paragraph 1. 4 below.  
1.3 Further, the Law envisages  that credit institutions will be invited to apply for government guarantees 
during a period of thirty days from the date on which the draft decree is adopted by the Minister  for 
Finance . A contract will the n be entered into  between the Government and each of the interested 
credit institutions  that apply , on the expiry of which the respective g overnment guarantee  will lapse.  
Government guarantees are to be allocated to individual credit institutions according to their share 
of total domestic deposits and their share of total performing domestic loans, excluding amounts 
relating to companies registered or established but not physically present in Cyprus and excluding 
interbank deposits and loans.  The provision of g overnment guarantees is to  be subject to payment 
of pro rata fees  by the credit institutions . The maximum amount of guarantees  that may be provided 
to any one credit institution is  25% of its  Tier 1 and T ier 2 capital  on 31 December  2020.  
1.4 Without prejudice to the powers of the CBC, the Law establishes a Monitoring Committee to monitor 
the implementation of the provisions of the Law and the decrees adopted under it , and to coordinate 
their proper and effective implementation. The Committee i s to be comprised of: the Accountant 
General or the Deputy Accountant General, acting as chair ; one officer of the Ministry of Finance 
appointed by the Minister  for Finance;  two officers of the CBC appointed by the Minister for Finance 
on the recommendation of the Governor  of the CBC ; and the Auditor General , or his  or her  
representative, as observer. The Monitoring Committee must  prepare a report every two months for 
the attention of the Minister on all matters that fall within its remit, which it must submit every two 
months  to the Parliamentary Committee on Financial and Budgetary Affairs. The Minister shall  also 
provide the same Parliamentary Committee with a quarterly update in connection with the said report.  
1.5 The Law empowers the Minister for Finance to issue decrees for the purposes of ensuring a better 
implementation of the Law, and in particular to determine matters such as the procedure for and 
terms on wh ich the guarantees  are granted, the amount of the fee paid by  the credit institutions, the 
applicable interest rate, and a recommendation to credit institutions to suspend payment of 
instalments, other than the amount relating to interest, for a period of 12 months from the date of 
commencement of the loan agreement.  
1.6 In the event of an infringement by a credit institution or borrower  of any provision of the L aw and/or  
the decrees  adopted under it,  or of any  terms and conditions of the guarantees, the Minister for 
Finance may impose an administrative penalty  ranging from EUR  1,000 to EUR  500,000 depending 
ECB -PUBLIC  
3 on the severity of the infringement , and a further penalty ranging from EUR  100 to EUR  50,000 for 
each day the infringement  continues  taking into account the severity of the infringement . Before 
proceeding with the imposition of a  penalty , the Minister must  consult with the CBC in order to ensure 
that the penalty  does not create any  financial stability  risks.  Before imposing the fine, the Minister 
must  also notify the credit institution or loan beneficiary concerned, explain why action is to be taken 
against it , and allow  the right to submit observations within fifteen days from the date of the notice.  
1.7 The draft decree sets out the details which relate to the granting of the government guarantees, 
including, but not limited to,  the amount and interest rate of the new loans, the definition of the losses 
that can be covered under the scheme, the criteria for the distribution of the guarantees to credit 
institutions  and the control mechanisms for the use of the guarantees by credit  institutions.  
 
2. Observations  
2.1 The ECB notes  that the Monitoring Committee established under the Law has been entrusted with 
the responsibility  of (a) monitor ing the implementation of the provisions of the Law and the decrees 
adopted under it  and (b) coordinat ing their proper and effective implementation. T he Committee must  
also report to the Minister for Finance on all aspects that fall within its remit and its r eport must be 
submitted to the Parliamentary Committee on Financial and Budgetary Affairs.  
2.2 The ECB understands that the Monitoring Committee’s role is , as its name implies,  confined to an 
observational or monitoring role , with a duty to report on its observations to the relevant Cypriot 
authorities . This is evidenced by the fact that the Law does  not confer on the Monitoring Committee 
any decision- making or discretionary powers in relation to the application of the provisions of the 
Law. Rather , the Law merely confers on the Monitoring Committee a function of reporting as to 
whether the legal framework is being properly and effectively implemented. In addition, the fact that 
the Law does not set out any rules of procedure governing the members of the Monitoring Committee 
or the Committee’s operation is another indication that the Committee has no l egal powers with 
regard to taking any decisions on matters relating to credit institutions which fall within the remit of 
the Law and the decrees  adopted under it .  
2.3 Moreover , with regard to the task  of the Monitoring Committee to monitor the implementation of the 
provisions of the Law and the decrees  adopted under it , and given the fact that the Law does not 
confer any decision- making or discretionary powers on the Monitoring Committee,  the ECB 
under stands  that the monitoring will be done for the sole purpose of informing the Minister  for Finance  
and the relevant Parliamentary Committee. It is worth noting that  the Law does not specify how such 
monitoring will take place  in practice. In particular, the Law does not entrust the Monitoring 
Committee with any investigative and/or supervisory powers  to ensure the compliance of credit 
institutions with the Law , such as the power to request information from credit institutions4 or inspect 
their books and documents . In the absence of such  powers , it is not possible to underst and from the 
Law how the Monitoring Committee might discharge its responsibilit ies of monitoring the 
implementation of the provisions of the Law and the decrees  adopted under it,  and of coordinating 
 
4  It is noted that  Article 12 of the draft decree stipulates that credit institutions must submit on a half -yearly basis or as 
and when requested by the Treasury , an electronic file containing a breakdown of the loans granted.   
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4 their proper implementation.  At any rate, the ECB underlines that any investigative or other type of  
power  and any task  that may be conferred on  the Monitoring Committee by the legislator would need 
be exercised for the sole purpose of fulfilling the tasks of th at Committee under the Law and should 
be without prejudice to the tasks and powers conferred by Union law on the CBC and the ECB as 
regards  the prudential supervision of credit institutions . It is further understood that the Monitoring 
Committee’s responsibility for coordinating the effective implementation of the Law and the decrees 
adopted under it , is intended to ensure that the underlying objective of granting new low -interest 
loans to businesses and self -employed persons for the purpose of increasing the liquidity in the 
Cypriot economy  is achieved.   
2.4 The Law is silent in relation to the function of the Monitoring Committee of receiv ing complaints by 
unsuccessful loan applicants , and does not prescribe the procedure to be followed in the event that  
such a complaint is submitted,  or what the role of the Committee  is. In the absence of any specific 
provisions, the ECB understands  that the Monitoring Committee will simply report to the Minister for 
Finance and to the relevant Parliamentary Committee on the receipt of such complaint s, without 
having the power to take any act ion towards resolving or adjudicating on any dispute s arising out of 
such complaints . 
2.5 Considering the tasks conferred on the Monitoring Committee, the ECB understands that the role 
envisaged for the Monitoring Committee by the Law is essentially that of fiscal oversight . This 
understanding is also supported by the presence of the Accountant and Auditor Generals , as chair 
and observer , respectively,  in the Monitoring Committee.  In view of  the mandate  of the Monitoring 
Committee to assist the G overnment in the application of a State guarantee scheme, a qualified 
independent entity would be well positioned to monitor compliance with the Law5. In the absence of 
any fiscal oversight mandate or role for the CBC, it is noted  that the officials of the CBC  are not well 
positioned for the purposes of  fulfilling this mandate.   
2.6 By the same token, given the CBC’s role as a national competent authority for the prudential 
supervision of credit institutions  within the Single Supervisory Mechanism (SSM) , the participation of 
CBC officials in the Monitoring Committee, and especially in potential reporting by the Monitoring 
Committee,  may give rise to legal uncertainty as regards  the capacity in which they part icipate in that 
Committee and the tasks that they perform in this capacity , which could potentially lead to conflicts 
of interest . This is particularly relevant in relation to the function of the Monitoring Committee of  
receiv ing complaints by unsuccessful  applicants against decisions  of credit institutions which are 
themselves  supervised by the CBC  and the ECB  within the SSM.  Even though the Monitoring 
Committee does not enjoy any formal powers in this respect, it should be ensured that, in practice, 
there is no interference with credit institutions’ credit risk management processes and that conflict s 
of interest  with respect t o prudential supervisory concerns regarding the need for effective credit risk 
management are avoided.  
2.7 In this regard, the national legislator is invited to reconsider the CBC’s representation in  the 
Monitoring Committee at the next available occasion,  and thus ensure that the legal framework will 
be monitored by an independent body that is not involved in the prudential supervision of credit 
 
5  See paragraph 3.1 of Opinion CON/2019/42 and paragraph 3.2.4 of Opinion CON/2016/17.  
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5 institutions6. The national legislator could also consider a better delineati on of  the tasks and powers 
of the Monitoring Committee in order to ensure legal clarity  and certainty in the application of the 
Law. 
2.8 In any case, given that the Law does not confer any  tasks on the CBC, and given  that the Monitoring 
Committee does not enjoy any decision- making or discretionary powers under the Law, the ECB  
underst ands that neither the CBC nor its representatives on the Monitoring Committee can incur  any 
liability in respect of that  Committee’s activities.  
2.9 Finally, the Law envisages  a consulting role for the CBC in relation to the financial stability 
implications of the imposition by the Minister for  Finance of administrative penalties  on credit 
institutions and borrowers . Given  that the Law does not confer a ny new task s on the CBC, but rather 
envisages for it this  consulting role and leaves decision s on the imposition of penalties with the 
Minister, it is understood that the CBC cannot incur any liability in this respect . 
2.10 The ECB expects to be re- consulted if it is envis aged that: (a) the role of the CBC  is to be substantially 
expanded beyond that provided for by the Law and the decrees adopted under it  and the CBC  is to 
extend its participation in the Monitoring Committee beyond the provision of advice in the context of 
the Committee’s monitoring mandate;  and (b) powers are to be conferred on the Monitoring 
Committee that may have an impact on the prudential supervision of credit institutions .   
 
This opinion will b e published on EUR -Lex.  
 
 
Done at Frankfurt am Main, 11 June 2021.  
 
[signed]  
 
The President of the ECB  
Christine  LAGARDE  
 
6  See paragraph 2 of Opinion CON/2013/86.