12° Nicosia,
29 May, 2024

Georgiades makes a “good case” for Co-op sell-off

Cyprus Cooperative Bank at a crossroads with two options on the table


Borrowers who default on a loan won’t be able to pick up the phone and ask a politician to intervene, according to Finance Minister Harris Georgiades, who insists that separating healthy banking from bad loans is the best way forward for the Cyprus Cooperative Bank.

Speaking before the House finance committee on Thursday, Georgiades called on MP’s to carry their share of the burden by helping to foster calm and trust among the public.

“Confidence and stability should not be undermined,” the minister told the committee.

Georgiades also listed two options in the denationalisation process of the bank, saying CCB could either keep its current structure as a single system or bad loans would be taken out of the picture to leave a healthy bank separate from non-performing loans (NPL).

“We won’t have a situation where a borrower will pick up the phone and call the minister or an MP to fix a loan and make due payments go away”

The current structure of the CCB has been deemed unworkable, as the bank leads in the amount of deposits held by Cypriot depositors but is being held back by €6 billion worth of bad loans. That translates into 60 percent of its loan portfolio.

The minister has been for days and weeks talking about new opportunities and potential, trying to make the case that denationalisation of the CCB could provide some opportunities in the area of dealing with NPL’s.

During the finance committee hearing, Georgiades was more specific, explaining to members that a healthy CCB (without bad loans) would need fewer funds than a bank carrying the NPL burden as well.

“There is the second option for investing new capital, not in the whole bank as it is currently, but in the healthy part, the performing loan, the deposits, the network infrastructure, and staff. This calls for less capital needed, of course we are still talking about a few hundred million, but certainly a lot less than what would be expected from the unitary bank structure, thus the second option is more feasible,” the minister said.

The "good" option

The second option would mean private hedge funds would need to invest in a “bad bank” separately, something which has been absent from the economic lexicon in Cyprus. Based on strict rules from the EU, this would mean irresponsible borrowers would have to deal directly with the bad bank without political interference.

“We won’t have a situation where a borrower will pick up the phone and call the minister or a member of parliament to fix a loan and make payments not due,” Georgiades said.

Ten days ago the government said it was depositing €2.5 billion at the Cooperative Bank of Cyprus, as part of a broader plan to eliminate uncertainty among depositors in the wake of a privatisation bid. But the CCB, as it is currently set up, has been dragging along a huge NPL amount, which has been restricting growth for years.

Cyprus has rebounded from a financial crisis that peaked in 2013, when the country secured a €10 billion euro bailout from international lenders on conditions it would apply more prudent measures and reforms, leading to the island’s exiting the bailout in 2016.

Cyprus  |  Georgiades  |  co-op  |  bank  |  NPL  |  loan

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