The government’s action to deposit €2.5bn at the co-op bank reassures customers not to worry about their money, its spokesman said on Wednesday.
“This huge deposit sends the message to the rest of the savers that they don’t have to worry about their deposits,” Prodromos Prodromou said.
On Tuesday, the finance ministry said it had deposited €2.5bn raised from several bonds, worth €2.35, issued to the Cooperative Central Bank (CCB) and from its cash reserves.
As collateral the state has received all the co-op’s non-performing loans – around €6.4bn – a number of memberships in private and cooperative companies, and a number of properties in the government-controlled and the Turkish-occupied north, worth over €7.6bn.
On March 19 the CCB launched a tender for the expression of interest offering two options: acquiring a controlling stake in the bank’s share capital, currently owned by the state, or acquiring assets and liabilities.
However, the process, together with incessant and often irresponsible talk from politicians, generated uncertainty concerning the future of the CCB. This triggered deposit outflows, prompting the state to step in in a bid to restore confidence.
Prodromou said the bank could now calmly examine the investment interest and decide which would be the most beneficial option.
Unlike the past, the state currently can make such an intervention to support a bank’s deposits and its customers.
“This is the difference with 2012-2013 when the old co-op we knew had reached the end of the road and this state bank took over, which again, must evolve,” Prodromou said.
The spokesman said the priority was to maintain the system’s stability and start the two-pronged process of effectively dealing with non-performing loans (NPLs).
“First the vulnerable borrowers must be protected with strict criteria, but at the same time the rest who exploited the system must be forced to repay their loans,” Prodromou said.
The co-op bank was recapitalised with €1.67bn in taxpayer money in 2014 and 2015, after hundreds of separate branches were merged.
But it is struggling with some €6.4bn in NPLs, accounting for more than half of its loan portfolio, mainly because the foreclosure and insolvency laws passed by parliament in 2015 are very difficult to enforce.
The problem is that its portfolio is full of primary residences, which the legislation make it very difficult and time-consuming to move against.
In 2017, co-ops extended the collateral recovery period to seven years, a move that cost €150m in provisions.
The island’s lenders, the EU and the IMF, have called on the authorities to amend the foreclosure and insolvency laws.