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Our View: Is there any solution for BoC that would be acceptable to everyone?

THE IDEA of splitting the Bank of Cyprus into two entities has been presented as a certainty but it is anything but. The troika agreed that this could be an option but first there had to be feasibility studies proving that the numbers added up and both would be viable entities. This could further delay the completion of the re-structuring, which has already taken too long, but the troika was correct to insist on an examination of the viability of the enterprise.

According to the proposal the BoC would be split into two companies – one handling banking operations and one management of real estate assets. The asset management company would be given all the real estate that has been used as collateral by developers and other big businesses that cannot service their loans, with a view to selling them off when conditions permit. This is the general idea and although no more details were available.

There is however another good reason for splitting the bank into two entities. It would downsize the monster bank created by the transfer of Laiki’s assets to the BoC, which would have a 65 per cent share of the banking sector. Two smaller entities, specialising in different types of the banking business, would be easier to run and any difficulties they run into would be easier to manage and contain.

However, this has also been seen as a disadvantage of the plan by many. The DISY leader believed the bank’s depositors would lose out from such a move, if the asset company sold off loans and assets at low prices. A representative of developers expressed similar concerns on a radio show yesterday morning as had the Hotels Association. Then again, both these interest groups have an interest in preventing the sale of assets being held as collateral by the BoC.

For the DISY chief there was a moral issue – what legitimacy did the bank’s interim board of political appointees have to take a decision that would shape the future of the BoC. Surely this was a decision that only a board representing the bank’s new shareholders could take, he argued. It was justifiable concern, but is there any solution to the problems facing the BoC that would be acceptable to everyone?

We doubt it, which is why the feasibility studies have to be done, as the troika had asked, before any decision is taken. If the numbers add up and two entities have better prospects of survival than one, then the split would be inevitable. If they do not add up, the BoC would stay as it is today, but the exercise needs to be done as soon as possible.

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