EVERYONE thought that the Bank of Cyprus had turned the corner at the end of July when it officially exited its administration status.
In a joint statement, the Central Bank and Finance Ministry said at the time that “this development puts an end to the prolonged period of uncertainty.” Central Bank Governor Panicos Demetriades was even more expansive, saying “the exit from administration status constitutes a landmark in the banking sector’s restructuring and puts us on the right path towards economic stability.”
In September there would be an AGM and the new shareholders – those whose deposits were bailed in – would choose the new members of the board of directors, who would decide the new direction of the bank and how this would be pursued. The theory is that the new directors would have a big incentive to work for the recovery of the bank in order to recover some of the funds they had lost in the bail-in.
But it appears that Governor Demetriades has a different agenda aimed at maintaining the control he has been wielding over the bank since March. He is entitled to do this, as Laiki Bank which is under the Central Bank’s authority is the biggest shareholder in the BoC with an 18 per cent stake. There was a strong political reaction to the prospect of the Governor keeping control of the BoC and the issue was further complicated by reports that Demetriades was having meetings with lawyers representing the new shareholders of the bank, to establish their intentions. Was he vetting them before deciding whom he would allow to sit on the board?
DISY deputy Prodromos Prodromou quite rightly questioned the Governor’s motives. He said: “It is totally unacceptable for the supervisory authority of the banking sector to become involved in the formation of the board of directors of a bank he would be supervising. It is inconceivable for the supervisor to supervise a body for which, even indirectly, he had the responsibility of its selection.” Serious questions were raised about the integrity of the Central Bank, not to mention its objectivity in dealing with the BoC board, by the Governor’s involvement, Prodromou, quite rightly, pointed out.
How could the BoC ever have a chance of returning to normalcy, when the Governor acts both as supervisor and power-broker? What chance is there of the bank regaining public confidence when it is being used as the personal fiefdom of a Governor who seems hell-bent on maintaining his control over the board? And this is a Governor whose decisions, over the last year, caused great harm to the banking sector. He would be doing the BoC’s drive to regain public confidence a big service, if he cut all his links to it and stuck to his supervisory duties.