Economist sees little sign of president’s ‘miracle’

IN AN article titled ‘The bail-out is working; the bail-in isn’t’, The Economist’s take nearly a year after the banking crisis, is that the state of Bank of Cyprus poses the biggest threat to recovery.

The newspaper also said that despite some encouraging signs in the wider economy, it was premature of President Nicos Anastasiades to assert recently that the island was on the way to “a new economic miracle”.

“The main cloud hanging over the economy is the sorry state of Bank of Cyprus (BoC)…” said the newspaper.

It said the task of turning round BoC was immense, for two related reasons.

By absorbing the gross loans in Cyprus of the failed Laiki Bank, the BoC had doubled up on its exposure to the economy, and in particular to property, the Economist said.

It said that at the end of last year 53 per cent of BoC’s loans were non-performing being more than 90 days overdue. This was up from 36 per cent in June.

“With the economy and property market still falling, this bad-debt mountain will get even bigger, while the collateral will shrink further,” the paper said.

The bail-in of depositors with over €100,000 to the tune of 47.5 per cent has also sapped confidence in the island’s banks, particularly in BoC.

“There is a gaping hole in BoC’s balance-sheet between its loans and its deposits, such that its loans are 45 per cent greater than its deposits. The shortfall is met by €11 billion of central bank funding, of which almost €10 billion is emergency liquidity assistance, a measure of the bank’s plight,” the article added.

Referring to the BoC’s new Chief Executive Officer John Patrick Hourican who took over in October, The Economist said he was trying to reduce the bank’s international exposures and rationalise its core activities in Cyprus, which represent around 85 per cent of its loans and deposits. The number of branches has been slashed from 203 last May to 130 and the workforce cut back.

“Hourican is also shaking up the culture not just of BoC but of Cypriot banking by intervening early when clients fail to service their debts,” said the newspaper.

But it concluded that as long as the island’s main lender remains stricken, it is hard to see how Cyprus could stage a sustainable recovery.

At the end of last month BoC announced that it had posted a full-year loss of €2.04 billion for 2013, narrowing from a €2.21 billion loss in 2012.

The Cyprus Mail is the only English-language daily newspaper published in Cyprus. It was established in 1945 and today, with its popular and widely-read website, the Cyprus Mail is among the most trusted news sites in Cyprus. The newspaper is not affiliated with any political parties and has always striven to maintain its independence. Over the past 70-plus years, the Cyprus Mail, with a small dedicated team, has covered momentous events in Cyprus’ modern history, chronicling the last gasps of British colonial rule, Cyprus’ truncated independence, the coup and Turkish invasion, and the decades of negotiations to stitch the divided island back together, plus a myriad of scandals, murders, and human interests stories that capture the island and its -people. Observers describe it as politically conservative.