Sorting out the mess of the Cyprus Cooperative Bank (CCB) was never going to be easy, as the government has eventually found out. Some five years under state ownership and control, with €1.7 billion of the taxpayer’s money used to prop it up, the hoped for recovery has failed to materialise. This has put paid to government plans to reduce its stake in the bank by the summer, through a share issue, in compliance with EU regulations. An initial plan to donate 25 per cent of its stake to the bank’s customers was in violation of the constitution according to the Attorney-general.
On Monday the government announced it would accept expressions of interest for the purchase of the bank either as a licensed entity or for part of its assets and liabilities. This allows other banks to bid for the healthy part of the CCB’s operations – loan portfolio and deposits – while leaving the non-performing loans portfolio, which at €6.4 billion is more than half its loan portfolio, for another company. Local banks may be interested in purchasing the healthy part of the operations but it is difficult to see what company would show an interest for the portfolio of delinquent loans, which have low-value security.
The security for most of its bad debts are primary residences that the current foreclosures legislation makes it difficult to repossess, while collateral secured for loans was grossly overvalued. Under the circumstances, there is a strong possibility there would be no offers for the bad assets and the state will be stuck with the €6.4 billion NPLs, unable to significantly reduce them. Would a state-controlled bad bank attempt to foreclose primary residences in order to recover some of the loans? In the end, the taxpayer would be left to pick up the bill.
None of the political parties that issued statements attacking the government decision to “sell off” the CCB expressed the slightest bit of concern for the taxpayer, who has already paid €1.7 billion to help it survive. Interestingly the far right Elam and the communists of Akel joined forces in criticising the government’s decision to sell the wealth of the people as part of its neo-liberal policies. Neither they nor the other critics of the decision understood that the CCB is in the mess it is in today, unable to reduce its NPLs, because of years of mismanagement and corrupt practices in the name of the people. The CCB cannot be described as public wealth when more than 50 per cent of its assets are toxic, threatening its survival.
At least the government’s decision will salvage something from the shipwreck.