By George Psyllides
BANK OF CYPRUS’ (BoC) restructuring programme must be ready by the end of September, its interim CEO said on Saturday, as officials met with international lenders to discuss the lender’s future, which could involve breaking it into two in a bid to aid its recovery.
Christos Sorotos did not offer much information following a meeting at the Central Bank (CBC) on Saturday although reports suggested the sides agreed to examine the possibility of splitting the lender into two entities – one handling banking operations and the other managing real estate.
“The reorganisation programme must be completed by September 30,” Sorotos told reporters, stressing that nothing has changed in the procedure.
The lender has been in administration since March, when the EU decided to extend Cyprus a €10 billion lifeline on condition that it closed Laiki Bank, its second biggest, and recapitalise BoC using customer deposits exceeding €100,000 – a process known as bail-in.
BoC also absorbed certain Laiki assets.
So far, 37.5 per cent of uninsured deposits have been seized and an additional 22.5 per cent was blocked and could follow the same fate.
The depositors will receive equity in return.
An independent audit of BoC assets is under way, which would define precisely how much of depositors’ cash would be seized.
The audit is expected to be complete early the coming week.
Sorotos said the CBC had the exclusive authority over the audit and the final rate of bail-in.
Earlier on Saturday, the delegation of international lenders met with Finance Minister Harris Georgiades, CBC Governor Panicos Demetriades, and other top officials to discuss ways of helping BoC recover.
Reports suggested the sides agreed to examine breaking BoC in two and transferring certain problematic real estate projects to an asset management entity.
It is understood however, that the troika has set the condition that both entities must be viable.
One of the matters that must be addressed is the €9.0 billion in emergency liquidity assistance (ELA) – around half of the island’s GDP – that Laiki amassed before it was decided to wind it down.
CBC Governor Demetriades had admitted in the past that he had not resolved the insolvent bank earlier because he had instructions from the previous government to do this after the presidential elections.
The ELA has since been dumped on BoC.
Resolving the BoC issue would pave the way for the gradual removal of crippling capital controls introduced in March to prevent bank runs.
Although foreign banks on the island were exempt from most restrictions imposed under the bailout, customers at banks in Cyprus are limited to withdrawals of up to €300 a day, cheques cannot be cashed and bank transfers are vetted.
“Swiftly exiting the resolution status would allow us to take new steps to further ease, and ultimately eliminate capital controls,” Georgiades said this week.
Cypriot banks lost about €4.5 billion when European Union leaders agreed in late 2011 to a Greek debt write-down, designed to make that country’s debt burden more sustainable.
An independent commission tasked with looking into the future of the island’s banking sector said Cyprus’ banking crisis was caused by a lack of coherent national policy.
Its interim report said a policy of complacency, oversight, cultural rigidity to change, weak bank governance and foot-dragging on reforms was partly to blame for the downfall of the sector, coupled with its heavy exposure to debt-crippled Greece.
The commission also criticised the bailout terms imposed on the island saying they “created a critical banking situation and will make it very difficult for Cyprus to recover.”
It also questioned the wisdom of the forced takeover of Laiki by the BoC.
