THE HEADS of the troika, who are currently in Cyprus to monitor the implementation of the measures, stipulated by the bailout agreement, according to press reports, expressed displeasure over the delay in the restructuring of the Bank of Cyprus. Reports claimed that the IMF representative urged the Governor of the Central Bank to speed up the procedure, a demand that has also been voiced repeatedly by the Cyprus finance minister.
The troika, like the government, considers the completion of the restructuring an essential step for the return of the banking sector to normalcy. Once the BoC restructuring was completed and Hellenic Bank and the Co-ops were re-capitalised there would be a partial return to normalcy that would allow a time-frame to be set for the lifting of the capital controls that are hindering the operation of the economy.
Press reports indicated that the troika representatives believed that these actions would allow the banking sector to regain the public confidence essential for lifting the capital controls. At least this is the theory, but theory is often far removed from reality. And the reality is that, even within the current restrictions, there is a continuous outflow of money from the banks that has yet to stop. Confidence in the banking sector, after the bail-in, is zero, people believing their money is safer in their pocket than in the bank.
It would be interesting to hear suggestions on how to improve public trust in the banking sector from the troika, because we doubt anyone in Cyprus has a clue how this could be achieved. There are no ready answers or formulas for restoring trust and confidence after everything that had happened in the last few months. The bail-in of deposits was a drastic game-changer and it does not help that we still have as the Central Bank governor, the man who had done so much to destroy confidence in the banking sector, with his actions and public pronouncements.
Other recommendations by the troika, with regard to building confidence, were for the government to claim ownership of the memorandum and to make changes that would improve corporate governance. Again, in theory, these proposals are correct but they would not even begin to address the difficulties facing the banking sector, after the bail-in, the forced merger of the Bank of Cyprus with Laiki, the fire-sale of the former’s operations in Greece and the €9bn ELA debt it was lumbered with.
How could public trust and confidence be restored to a bank on which so many handicaps have been imposed, it appears like it was set up to fail?