Cyprus Mail

House working to limit CBC powers over new BoC

By Stefanos Evripidou

PARLIAMENT IS working to limit the powers of the Central Bank of Cyprus (CBC) as the resolution authority over the former Laiki (Popular) Bank and wrestle control of the majority shareholding in the new Bank of Cyprus (BoC) from the Laiki administrator, it transpired yesterday.

When the Bank of Cyprus (BoC) recently completed its recapitalisation process to come out of administration, the largest single shareholder turned out to be the former Laiki, represented by its administrator who is now effectively in charge of Laiki’s 18 per cent shares in the newly restructured bank.

This led DISY MP Prodromos Prodromou to question whether BoC has really exited the resolution regime at all, since in fact, 18 per cent of the new BoC remains under the control of the Laiki administrator, appointed by the Resolution Authority, headed by CBC governor Panicos Demetriades.

With the new BoC’s annual general meeting on the horizon, there appears to be concern by some that Demetriades will have influence over the largest shareholder in the BoC, and thus over the bank itself.

MPs are now examining ways to transfer control of the 18 per cent share capital in the BoC from the CBC-appointed Laiki administrator to Laiki’s creditors, including those who lost millions in uninsured deposits.

President Nicos Anastasiades yesterday confirmed as much when he said that the matter was being discussed in parliament while banking sources told the Cyprus Mail that the CBC board will review the issue on Monday.

Asked yesterday how one could guarantee that the Laiki administrator will manage Laiki’s shares in the BoC in a manner that will satisfy Laiki’s shareholders (mainly its uninsured depositors who took a massive hit after the Eurogroup’s decision to wind down Laiki last March), Anastasiades replied: “I understand the entirely justified request of Laiki shareholders who represent 18 per cent (of the BoC).

“At the same time, I understand that certain processes are underway in Parliament to see how they (Laiki’s creditors) can safeguard this 18 per cent, and not the administrator or liquidator of Laiki Bank. I will respect any decision taken in a democratic manner and after study by the legislative body.”

The issue has the potential to spark a new dispute between ruling DISY on the one hand and CBC governor Panicos Demetriades and by extension the troika on the other.

Prodromou has already flagged the principles of transparency and corporate governance, saying: “It is not possible for a public authority, namely the Central Bank, to be simultaneously the supervisor, the principal creditor and the biggest shareholder of a bank.

“How will the Central Bank be able, if needed in the future, to monitor decisions and actions of the management of the (BoC), if at the same time it is controlling it through its share capital?”

Local daily Politis yesterday reported that DISY leader Averof Neophytou is working on a strategy to convene a special session of parliament during the summer recess to amend the resolution law passed in March, limiting the powers of the resolution authority, and either removing Laiki’s voting rights in the BoC, or dispersing the 18 per cent among Laiki’s shareholders (in their majority uninsured depositors whose savings were wiped out).

“They should at least receive the shares that are allocated to them and have a say in the decision-making process regarding the future of the Bank of Cyprus. There is no logical argument for excluding them from the process,” said Prodromou.

However, banking sources said yesterday that the CBC is aware of the ethical dilemma regarding the 18 per cent and will convene on Monday to discuss how to deal with the matter.

They explained that the BoC shares cannot legally be transferred to and divided among Laiki’s creditors until Laiki enters into liquidation. This cannot happen until the latter sells off its subsidiaries in Romania, Russia, Malta and Serbia.

If Laiki enters into liquidation and has its licence revoked, without selling off its subsidiaries, measures will likely be taken by the national supervisory authorities in the countries where the subsidiaries are operating.

In the meantime, the aim of the administrator is to protect the creditors’ interests and ensure the BoC is profit-making.

The same sources questioned on what grounds parliament would remove the voting rights of the biggest shareholder in the new BoC, and how far this scheme would go with the troika.

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