Cyprus Mail
Business Cyprus

Co-ops face crippling 10pct interest loan

By Stefanos Evripidou

THE CO-OPERATIVE Movement could find itself paying up to €150m a year in interest on the €1.5 billion loan needed to meet its recapitalisation needs, it was reported yesterday.

The high interest would put a crippling debt over the co-ops left standing after a restructuring plan which foresees the closure or merger of around 70 co-operatives.

According to Phileleftheros, the memorandum of understanding (MoU) signed with international lenders for a €10 billion bailout stipulates that the €1.5 billion earmarked for the recapitalisation of the co-operative movement will be loaned using the EU’s rules on state aid.

The philosophy behind the provision is to avoid the taxpayer having to take on the burden of the co-operatives’ needs.

A source confirmed to the Cyprus Mail yesterday that the European Commission calculates that, based on state aid rules, the state would have to fix an interest rate on the loan to the tune of around 10 per cent.

This would put a huge burden on the already struggling co-ops to come up with around €150m a year just to pay off the interest.

The Cypriot authorities submitted a request for the co-ops to be granted an exemption from state aid rules as the conditions covering state aid do not apply in the current circumstances.

Instead, they have counter-proposed imposing a significantly lower interest rate of between 0.5 per cent and 2.5 per cent.

The source said the response to the request appears to be positive so far, noting that a figure like 10 per cent would seriously undermine the co-operative movement’s chances of securing its viability post-restructuring.

The troika delegation currently in Cyprus is reportedly in agreement with the Cypriot authorities on this point.

Meanwhile, sources also confirmed that the troika and co-operative leadership have reached a preliminary agreement on the number of co-ops that will remain after restructuring.

According to the terms of the bailout, co-operatives must drastically shrink in number, mainly through mergers while the Central Bank of Cyprus will also have a role in their supervision.

It is has now been agreed that the final number of co-ops that will remain after restructuring from the 90-odd co-ops around today is 18. A large number of branches are also expected to close down.

Earlier this week, outgoing general manager of the Central Co-operative Bank (CCB) Erotokritos Chlorakiotis said the final restructuring plan would probably be ready for implementation by the end of September.

The hope is that the restructuring of the co-ops will minimise the risk of mass layoffs, he added.

Part of the plan is to downsize staff by offering an early retirement scheme.

According to Chlorakiotis, this plan has been frozen until the final restructuring plan is ready.

However, an article by online news site Stockwatch last week revealed that the early retirement plan included extremely favourable terms for outgoing staff, over and far above what their colleagues in the Bank of Cyprus are currently negotiating for.

Under the proposed co-op plan, employees with 15 years of service under their belt, and approximately the same number of years left to go until retirement will get 41 times their salary as compensation for early retirement, counting for approximately three and a half years of earnings.

For example, a 45-year-old with 15 years left until retirement and who earns €3,000 a month will get €123,000 compensation if he opts for early retirement.

This is in addition to other retirement benefits employees are already entitled to such as provident funds etc.

Under the current early retirement plan under discussion at the Bank of Cyprus (BoC), for an employee in a similar situation, they would be afforded compensation worth 17 times their monthly salary.

It remains to be seen in September whether the relevant supervisory authority and troika give their stamp of approval to the co-op early retirement scheme.

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