By Stelios Orphanides
BANK OF Cyprus chief executive officer John Hourican has said that more regulatory and legislative changes are needed for the lender to overcome its biggest challenge which is to achieve a turnaround with its non-performing loan ratio of just under 50 per cent.
“We need changes in regulation, changes in legislation and continued aggression around managing that portfolio of assets,” Hourican said in an interview to the Financial Times on Monday. “That is the biggest challenge we got. That will allow us to fund the bank and create confidence. That’s why we raised much higher capital to be able to support that confidence rebuild.”
Hourican added that the capital increase by 1 billion euros carried out by the bank a month ago and ahead of the European Central Banks asset quality review set for late October, “creates future” as it is the largest ever direct foreign investment in Cyprus. “[It] is a vote of confidence not just in the bank but in the economy itself because they are so intrinsically interlinked,” he said.
“Cyprus is a small open economy so it is capable of turning very quickly,” Hourican said and added that it beginning to stabilise even as it contracts “at a much slower rate than was originally envisaged. So I am optimistic and positive on Cyprus”.
The new investors, which include US investor Wilbur Ross, who has a record in buying stakes in loss making companies and selling them after turning them profitable, and the European Bank of Reconstruction and Development, believed that the bank could become “capable of serving an economy, in an oligopolistic position”, Hourican said.
While his job has not been “a walk in the park”, Hourican – who took up his position last year – added that he is pleased that the lender, which had to turn a large portion of its deposits into equity under the terms of Cyprus’ bailout agreed with international creditors last year, is “ahead of the plans we set ourselves”.
The Bank of Cyprus CEO said that while he does not rule out that some of Europe lenders may fail the ECB’s stress test next month they may help build confidence in Europe’s banking system “provided it is properly portrayed and properly explained. It should allow people to think that the banking sector as strong and fixed or at least on its way to being fixed”.
Hourican said that the euro area’s fragile economy may need more than what the ECB has done in an attempt to strengthen its recovery process. While the ECB “is doing what it can” governments should prepare more daring fiscal stimulus programmes. “We need horizonal tax breaks, we need stimulus for capital injection, we need employment stimulus,” he said.
On September 4, the ECB slashed its refinancing operations rate and deposit facility rate to 0.05 per cent and -0.2 per cent respectively, the lowest ever since the introduction of the euro.
