New banking code formalizes procedure in customer defaults

The Cayman Islands Bankers Association has significantly expanded its banking code to outline how banks deal with customers in financial difficulties. 

The new amended code, which all CIBA members have to adhere to, specifies the steps banks will take to find a solution when borrowers are unable to make their loan payments. This includes exploring the potential of alternative repayment options, but the code also details how a property would be repossessed. 

CIBA President Mark McIntyre said the changes offer a clear path forward for both the individual and the lender when it comes to resolving financial difficulties. 

According to the code, banks are committed to commencing legal proceedings for the repossession of a property only when the lender has made every reasonable effort to agree to an alternative arrangement with the customer whose loan or mortgage is in arrears. 

But to take advantage of these options, customers have to inform their bank of changes in their personal circumstances early on. 

“If people are in financial problems, please talk to your bank,” Mr. McIntyre said. “The bank is not in the real estate business. We don’t want to sell property. Our preference is to renegotiate the terms.” 

To find a solution for loan repayment problems, banks will consider the borrower’s personal circumstances, overall indebtedness, repayment capacity and previous repayment history together with any other financial information the customer can provide. 

Lenders will then explore alternative repayment options such as interest-only repayments or a reduced interest rate for a specified time, or deferring the repayments altogether for a limited period, the code states. 

In these cases, the banks will need to see credible evidence that the customer’s repayment capacity will improve, for example if a customer temporarily has no income due to loss of employment or illness. 

Mr. McIntyre said tailoring the solution to fit the customer’s unique situation is a far more positive way to find a speedy solution to their financial difficulties. 

Generally, loan term renegotiations are long, protracted affairs and banks will give their customers time, he noted. “It is not that your loan is in arrears on Monday and on Tuesday we have a for sale sign outside.” 

The changes to the code have come in response to public debates about foreclosures, among others in the Legislative Assembly, and are “just trying to deal with the noise in the marketplace that banks are somehow behaving inappropriately,” Mr. McIntyre said. 

As such, the amendments articulate common market practice by banks rather than ring in wholesale changes to the way banks deal with their customers. The more detailed banking code explains what customers in financial difficulties can expect from their bank. 

“I am delighted that we have been able to properly address what happens when someone finds themselves in financial difficulties in a clear and positive manner which we know will be of great benefit to the public,” the CIBA president said. “People in financial difficulties who have a mortgage or other loan with their bank can take comfort in knowing that there are a variety of solutions available to them and that their lender will work with them to find the right solution for them.” 

In addition, new clauses have been added to deal with repossessions and property sales, laying out concise guidelines as to how these procedures would take place. 

However, Mr. McIntyre explained, repossessions are the last resort and it takes years rather than months to get to the foreclosure stage. 

The perception that home foreclosures are a growing problem is a reflection of this long process and backlog and not of the marketplace. “Cayman has probably the lowest level of consumer delinquencies in the Caribbean,” he said. 

A new amended banking code in Cayman allows for exploring the potential of alternative repayment options, but it also details how a property would be repossessed.
A new amended banking code in Cayman allows for exploring the potential of alternative repayment options, but it also details how a property would be repossessed.