THE SAGA of the bail-in of the Bank of Cyprus’ uninsured deposits ended yesterday, when the percentage of the haircut was officially announced by the Central Bank and Ministry of Finance in a joint statement. The hair-cut, approved by the troika, would be 47.5 per cent or, to use the official-speak, “the Bank of Cyprus has been fully recapitalised today by the overall conversion of 47.5% of uninsured deposits into shares in the bank.”
In the end, the government, which had been arguing for a smaller haircut rate on the grounds that the capital adequacy ratio of 9.0 per cent could still have been met, gave in to the troika and the Central Bank that wanted an additional buffer. The final rate gave the BoC a core tier 1 capital ratio of 12.4 per cent, as the bank’s balance sheet stands at the moment, the higher ratio used as a buffer against the low confidence in the banking sector.
Yesterday afternoon the Governor of the Central Bank met the Chairman of the transitional board of the BoC to inform him that the bank was no longer in administration which meant that the board would now have all the decision-making powers. This would be only until the bank’s AGM at which the new shareholders would elect a new board of directors.
It was inevitable the Central Bank and finance ministry would put a positive spin on the recapitalisation that would be “ending a period of uncertainty.” In their joint statement, they concluded: “The recapitalisation of BoC and its exit from resolution are key milestones in the rejuvenation of BoC’s financial standing which will underpin its resilience and ability to support the Cyprus economy and thus assist in stabilising the financial sector in Cyprus.”
Such optimism is very difficult to understand, considering that capital controls remain in place and there is zero public confidence in the banking sector, as the continuous fall in deposits indicates. It will take much more than positive statements from the authorities to restore confidence and trust in the banking sector; public disagreements between the government and the Central Bank do not help either.
The board of the Bank of Cyprus, now it is free to act, should make the formulation of a strategic plan for regaining public confidence, its number one priority. It should hire foreign experts to advise it, set up support teams and act decisively. Restoring confidence should be its only objective until it hands over power to the new board.