By Elias Hazou
POLITICIANS yesterday roundly censured a floated proposal for splitting Bank of Cyprus (BoC) up into two parts, warning the move would deal a death blow to the island’s largest lender and to the economy at large.
Archbishop Chrysostomos yesterday called any such notion “an abomination”.
The idea – details of which are sketchy – was leaked to the press in the past few days, and envisages breaking BoC into a purely retail operation and a real estate or asset management operation.
Essentially the latter would amass all the non-performing loans linked to real estate property, with a view to auctioning off the properties to raise cash and alleviate the bank’s liquidity problems.
As it’s understood, the bank’s ELA (a liability on the balance sheet) would be split in two – one part going to the retail business and the other to the real estate arm.
Aside from its own emergency liquidity assistance (ELA), BoC was saddled with Laiki Bank’s some €9 billion in emergency liquidity funds when the two lenders merged as a condition for a €10m international bailout of Cyprus back in March.
Around €800 million, or 25 per cent of BoC’s loans tied to real estate could be problematic, according to investment firm Pimco which earlier evaluated the bank’s capital needs.
BoC’s interim leadership has defended the new plan, arguing that ‘average’ property owners have nothing to fear. Rather, they say, it’s targeted at real estate developers.
But almost all parties slammed it as a bad idea. DISY leader Averof Neophytou called a news conference yesterday to say the plan, if implemented, was an open invitation to speculators and hedge funds to come here and carve up the real estate sector.
Though the bank’s board would deny it, he said, their plan effectively aims to create a good bank-bad bank.
And allowing the fire sale of collateralised properties would have a knock-on effect on property prices in general, he warned: “I wouldn’t like to wake up one morning and see people’s homes getting sold at 40 to 20 per cent of their value.”
What’s more, it’s not up the bank’s transitional leadership to set in motion such a major shake-up, said DISY deputy Prodromos Prodromou.
“Their remit is to oversee the bank’s business plan and credit policies, nothing more,” the MP told the Mail. “It’s not their decision, this is something that only the bank’s new owners – the depositors whose money we took in exchange for equity – can decide,” he added.
BoC is just days away from exiting its status of administration under the Central Bank, and will be holding an AGM of shareholders to elect the new board. The bank’s restructuring is expected to wrap up by September.
“It’s the worst possible time to air this idea, not least while the troika is in town, said Prodromou.
He also questioned the thinking behind the proposal.
“If they think that re-jigging the bank’s ELA will improve the balance sheet, they’re dead wrong. The overall ELA amount will remain the same, so what’s the point?
Other parties released statements voicing similar concerns. However the proposal apparently does not have the backing of the government.
Archbishop Chrysostomos seemed to be hinting as much yesterday following a meeting with the President to discuss the matter.
Earlier, the top cleric had called the proposal to split up BoC “an abomination.” He revealed also that the Church, which is the biggest shareholder in Hellenic Bank, had been sounded out for participating in the mooted real estate arm of BoC.
He flatly rejected the overtures, he said.
But during yesterday’s meeting Chrysostomos appears to have received certain assurances from the President that the BoC split-up would not go ahead – at least for the time being.
Speaking to newsmen later, the Church leader remarked he was “very satisfied”, adding that “I believe things will go well.”
He did not elaborate.
The Church has a 29 per cent stake in Hellenic Bank, currently the island’s second largest lender after the demise of Laiki.
Its holdings make it the single largest landowner in Cyprus.